Goldman says end of Argentina FX controls key to reviving IPOs

Argentina's President Javier Milei needs to start getting rid of capital and currency controls to lure equity investors and sustain a rally in the local stock market, according to Goldman Sachs Group Inc.

“Markets need clarity and certainty that capital can flow freely in and out of the country, and it’s clear the government understands that and that they’re working toward trying to get that done,” Max Ritter, Goldman’s head of mergers and acquisitions for Latin America, said in an interview.

Milei is staring down a critical test with midterm elections later this year, which will determine whether he’ll have runway to cement his economic reforms and if people are still willing to tolerate his belt-tightening campaign.

Just as important as the election will be removing the capital and currency controls, Ritter said, not just for long-term strategic investors “but also equity investors to make sure that, effectively, the changes are there for good.”

With more clarity over who prevails in the October vote, energy producers will probably be among the first candidates to raise capital, Ritter said, citing how they generate dollar revenues and are currently benefiting from a boom in oil and gas production in the country’s Vaca Muerta shale fields.

“This is not just about a plan to lower inflation and reduce the deficit,” Ritter said. “What Argentina is going through is a production shift, going from a more protective, domestic industry to much more export-oriented industry.”

But for Argentine companies to attempt initial public offerings, fund managers first need “to see quality follow-ons happening with quality, long-term investors,” the banker said.

Argentina has no shortage of challenges ahead. Chief among them is a lingering concern that lifting currency controls could trigger a run on the peso and fan inflation, whose total elimination proved elusive for Milei’s predecessors. Still, the nation is projected to bounce back from a bruising recession and grow more than four percent this year, and expectations are mounting that a new programme between the government and the International Monetary Fund is imminent.

There’s been little in the way of foreign investment flows to match the praise for Milei. Instead, a wave of multinational companies, including HSBC Holdings Plc, Telefonica SA and Mercedes-Benz Group AG, have sold their Argentine operations to local groups since the president took office in December 2023.

The country hasn’t seen a company make an equity-market debut since 2018.

It also remains to be seen whether Argentina’s incipient recovery isn’t another of many false dawns. Money rushed to the country during an earlier turn to market-friendly policies, only to leave when pro-business president Mauricio Macri lost to the statist Peronist party in a 2019 vote.

Goldman, however, sees some signs that the economic turnaround may be here to stay.

“For the first time in a long time, it feels different than other cycles in Argentina,” Ritter said. “This time it feels that the population understood that difficult adjustments had to be made to recalibrate incentives correctly.”