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First debt test begins under new Argentine minister

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The ministry will offer investors the possibility of exchanging inflation-linked securities and other securities for new bonds.”duals” maturing in 2023. The new securities pay investors the higher of two rates at maturity: either an inflation-linked rate or a dollar-linked rate.

The swap comes just a week after Massa took over as economy minister as inflation tops 64% and international reserves fall to critically low levels.

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On August 3, the new minister unveiled a series of measures, including a promise to stop money printing that had boosted consumer prices, triggering a rally in local debt markets that sold off in June in amid fears that high inflation would make the government’s peso debt burden unsustainable.

Cut off from international capital markets, the government of President Alberto Fernández has relied on printing money to cover its chronic fiscal deficit.

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Last week, the central bank also raised its benchmark rate by 800 basis points to 60% and plans to raise rates again on August 11 in a bid to reduce excess money in the economy.

The swap will help reduce Argentina’s large local debt maturities due in the coming months. The government has about 575 billion pesos ($4.3 billion) in local debt due in August and more than 1 trillion pesos due in September, according to local consultancy Alchemy Valores.

The total amount of securities eligible for the swap amounts to 2.4 billion pesos, according to Juan Manuel Pazos, chief economist at TPCG Valores in Buenos Aires. About 60% of that is in the hands of public institutions, such as the pension system, while banks and mutual funds have between 20% and 25%, Pazos said.

The economist thinks that the Government should be able to redeem at least 80% of the debt on offer. Last week, Massa said that the government had already received commitments from 60% of the holders to participate in the swap.

There is a reasonable chance that banks and insurance companies will actively participate in this swap because the government offered an inherent currency hedging hook”, PPI analysts led by Joaquín Bagües wrote. “If these players are joined by the likely participation of large private sector holders, net new financing could surprise to the upside.”

The redemption will take place between 10 am and 3 pm local time.

Source: Gestion

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