Argentine corporates are bright spot after nation's debt default

You might think Argentine companies will struggle to stay current on US$2 billion of bond payments due this year amid the government’s ninth default, a long recession and ever-stricter capital controls. You’d be wrong.

Firms including state oil firm YPF SA and airport operator Aeropuertos Argentina 2000 SA are getting creative, using swaps of overseas debt and local peso bond sales to help manage big payments. Investors have noticed: Argentine corporate bonds fetch about 30 cents more than the nation’s sovereign notes.

Through swaps and local issuance, most companies have managed to push forward their debt obligations so far. It’s a rare bright spot for companies in Argentina’s otherwise moribund economic landscape as lockdowns fuelked by the pandemic help push the nation into its third year of contraction.

“Companies were very careful to tidy up ahead of a possible government default or the market closing,” said Federico Perez, who helps oversee 26 billion pesos (US$374 million) at Mariva Asset Management in Buenos Aires. “They were careful not to have large dollar payments in the short term.”

Bonds from YPF and oil and gas driller Pampa Energía SA were among the best performers in emerging markets in the past month. The gains were driven by increasing confidence in a successful government debt restructuring and optimism about a resurgence in regional power and fuel demand as lockdowns ease, according to Bloomberg Intelligence analyst Jaimin Patel.

“While the bond spreads of regional issuers are often wider due to weaker sovereign-credit profiles, this is significantly more so in the case of Argentine energy companies, including Pampa Energia.” said Patel.

YPF’s bonds due 2027 edged up one cent to trade at 71 cents on the dollar on Wednesday, while Argentina’s US$3.75 billion in sovereign bonds due the same year traded at 39.5 cents.

The situation is far from entirely rosy. The government imposed its latest round of capital controls late last month, aiming again to protect foreign-exchange reserves. Argentine firms owe US$618 million – about a third of the total payments remaining this year – in November alone, according to estimates by Buenos Aires-based consultant 1816 Economia & Estrategia.

“The collapsed economy is a big issue,” said Roger Horn, a senior emerging markets strategist at SMBC Nikko Securities America in New York. “Even the more severe FX restrictions allow the companies to buy dollars to repay foreign bonds”

The latest restrictions limit access to the parallel blue-chip swap rate and force companies to use assets outside Argentina to repay overseas debt. The controls are part of a months-long clampdown on the nation’s unofficial exchange rate, which spiked in May as investors clamoured for dollars ahead of the default.

Going local

The coronavirus crisis will probably hurt corporate liquidity through mid- to late 2021, especially among non-financial corporate, utility and infrastructure companies, according to Moody’s Investors Service Inc. Restricted access to international bond markets may prevent most Argentine companies from fully refinancing the total US$3.8 billion in debt due through 2021, analysts Martina Gallardo Barreyro and Marianna Waltz wrote in a note.

For now, some corporates are executing swaps on their overseas debt to shore up financing. Real estate company Raghsa SA and airport operator Aeropuertos Argentina 2000 SA have already carried out swaps, and others may pursue similar exchanges, Horn said.

Other companies including oil and gas driller Pan American Energy LLC, shopping mall operator IRSA Inversiones y Representaciones and renewable energy company Genneia SA have turned to the local market, and have all sold local debt in recent weeks.

YPF also expects to roll over obligations through bond sales in the local market, investor relations manager Ignacio Rostagno said in an earnings call last month. The sprawling oil firm has almost US$3 billion of debt maturing in 2020 and 2021 and held about US$1.2 billion in cash and equivalents at the end of the first quarter, according to a company presentation.

YPF has US$321 million of payments due before July 31, according to data compiled by 1816 Economia, the consultant. It sold about US$100 million of dollar and peso-denominated bonds on June 10.

Balanz Capital analyst Ezequiel Fernández favours bonds from energy company Pampa Energía SA and gas transporter Transportadora de Gas del Sur SA. Their assets are largely located in Argentina, and have smaller overall debt burdens with fewer payments due this year, according to the analyst.

The wild card: Whether Argentina can successfully renegotiate US$65 billion of its own overseas debt, because a swift resolution increases chances that companies can keep rolling over payments. Economy Minister Martín Guzmán told the Brazilian newspaper Folha de São Paulo that he’s confident a pact can be reached this week. The government has extended its deadline for a debt deal until Friday.

“If the national government does not fix its debt, companies are going to have a harder time rolling over their obligations,” Fernández said. “The government may also further restrict access to the exchange market to avoid losing reserves.”