Argentine debt holds steady as Repsol payment seeps into market
12 May 2014 | By Paul Kilby
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The up to US$6bn in bonds received by Spain’s Repsol as compensation for the 2012 expropriation of its 51% stake in Argentina’s YPF are already seeping into the marketplace, as bank intermediaries were heard selling the new Bonar 2024s to buyside accounts last week.
So far, Argentine sovereign debt prices have remained steady despite concerns about the sale of the remaining US$1.75bn in bonds held by Repsol, not to mention similar payments expected to be made to the Paris Club and other creditors as Argentina seeks to cover arrears and normalise relations with external markets.
“They issued US$3.25bn, which is sizeable, but from what I can see there wasn’t a significant [impact],” said an investor. “If you are going to bring out that many bonds, the effect should have been more significant.”
Traders have been reporting some profit-taking on the 2024s, but prices remain well bid by the underlying demand from investors unable to buy in the first round of selling.
JP Morgan was one of the intermediary banks involved in the trade after receiving substantial buyside interest at an investor conference held at the IDB meetings in Costa do Sauipe, Brazil, earlier this year, according to a source knowledgeable about the transaction.
The US bank told investors that it had bought the bonds at 86.50, or around 11.56% on a yield basis, and sold them to one particular account at 86.75, or around 11.51%, the source said.
That quarter-point spread would equate to a US$8.125m profit for any bank that had bought the entire US$3.25bn block, he added. Market participants were quoting the bonds considerably higher this morning, at a mid-market price of anywhere from 88.00 to 88.50.
“It seems like fair value,” said a New York-based trader. “But if all the potential supply hits the Street, that will put pressure on the market.”
Last month, the government put fair value on the Bonar 2024s at 11.07%, but supply risks and new issue premiums realistically called for a fair value yield that was closer to 12.4%, Siobhan Morden, head of LatAm strategists at Jefferies, noted last month.
Under the agreement, Repsol received a fixed package of bonds with a nominal value of US$5bn, comprising US$500m of Bonar 2017s, US$1.25bn of Discounts due 2033 and US$3.25bn of new Bonar 2024s.
Repsol is entitled to an additional US$1bn bond package. This can be activated if the market value of the initial US$5bn in bonds falls below US$4.67bn during a 90-day period, which was expected to start after Repsol received the payment last week.
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