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Donnerstag, 23. April 2015

Bonar 2024: Kicillof’s Gross Mismanagement of Argentina’s Finances

Bonar 2024: Kicillof’s Gross Mismanagement of Argentina’s Finances

On Tuesday, we reported on Argentina’s decision to issue $1.4 billion in new bonds.  It is an extravagant fleecing of the Argentine taxpayer, given the staggeringly high interest rate yield of the offering.
We see several take-aways for our readers:
- Argentina remains very much isolated from global capital markets.  Kicillof had to “pay off” foreign investors with a gift of hundreds of millions of dollars. Kicillof essentially sold a bond worth 107 for only 103. That is not prudent economic management. If Argentina was more like its neighboring countries, such large kickbacks would not be necessary.
- More specifically, the 9.0% yearly yield offered by Argentina is exactly 5% over the average market value for the region, and represents an egregious waste of roughly $630 Million.  Or, as the Wall Street Journal dubbed it, a “steep cost.”
 – Argentina’s desperate hunt for dollars makes clear that the current administration intends to remain in contempt of court, has no interest in negotiating with its creditors, and plans to leave this festering debt mess for the next administration to clean up;
Kicillof’s actions as Economy Minister have unfortunately and consistently produced miseryfurther miseryridiculeisolation, and even greater isolation.
The charts below feature the most recent sovereign comparables analysis utilizing 2014 GDP figures.  The reality is that the issuance of the Bonar 2024s is very “off market,” given the relative health of the Argentine economy.
Bonar Chart 1
Bonar Chart 2
As you can see above, Kicillof sold the Bonar 2024s at a 9.0% yield, versus the 4.0% average of similar bonds by Argentina’s neighbors.  In addition, the interpolated spread on the new Bonars is more than 700 basis points, versus roughly 200 basis points for comparable issuances.  Which means they are roughly 3.5x more expensive.
There is no excuse for Argentina’s leaders choosing to offer debt at yields this costly.  The dynamics which have led it to do so are self-imposed and immediately solvable.  All Argentina’s leaders need to do is simply meet with creditors, and negotiate a resolution to this long-standing debt dispute.

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