Oil-backed bonds in Argentina's Chubut province, once considered among the nation's safest assets, are being affected by the collapse of oil prices, impending sovereign debt talks and the province's own call for restructuring.
While Chubut bills that mature in 2026 are still trading at a premium to the nation's sovereign debt, they fell more than four cents this week, bringing their loss over the past month to about 15 cents. The Chubut bond was trading at 61.3 cents on the dollar at 12:40pm New York time on Wednesday, underperforming similarly structured bills.
The drop calls into question the reliability of Argentine oil-backed securities, which pay investors through oil and gas royalties transferred directly to trusts.
Bonds sold by the northwest region of Salta and the province of Neuquén, home to Vaca Muerta's shale fields, could suffer, according to Joaquín Bagues, head of strategy at Portfolio Personal Inversiones in Buenos Aires.
"Chubut has a big problem," analysed Bagues. "If his bond goes into default, investors in other oil-backed bonds will ask themselves, 'OK, what guarantees do I have now?' It would be the same in Neuquen. If there is a default, it is clear that the methodologies of these bonds will have to be reviewed.”
Chubut, a windswept province in southern Argentina's Patagonia, is one of three provinces seeking debt relief as Argentina begins talks with private creditors and the International Monetary Fund to renegotiate its debt.
Of Chubut's total debt of US$855 million, about 80 percent is in international bonds, according to the government.
The province said in January that it would seek to restructure US$650 million in foreign bills due in 2026, as it cuts spending to shrink an overburdened public sector.
The province will have an estimated fiscal deficit of 22 billion pesos (US$367 million) this year, due in part to a payroll that has shot up to 65,000 public employees, compared to 22,000 in 2003.
Chubut is not the only one affected by the collapse of oil prices. The governor of Neuquén asked the federal government on Wednesday to set an artificial price of approximately US$50 per barrel in Argentina after Monday's oil collapse.
In addition, Bank of America cut its target price for the state oil company YPF SA to just US$1. The share is valued at approximately US$5.60.
by Scott Squires, Bloomberg