Argentina has defiantly issued new bonds that are very likely subject to the pari passu clause in its defaulted bonds from 2001.

Kicillof’s “Win” is a Lose for Argentina

Post date : 04.21.2015 8:54 pm

Argentina has just announced—with much misguided excitement–that it has sold Bonar 2024 Bonds. Economy Minister Axel Kicillof has hailed the deal as some type of victory for the country, when in reality it is a waste of hundreds of millions of dollars given the egregious price at which the debt was issued.

To put this issuance into context, the majority of Argentina’s peers have yields between 3.1% and 4.2%.

Brazil issues debt at a yield of 4.2%.

Chile issues debt at a yield of 2.2%.

Uruguay issues debt at a yield of 3.3%.

The only country whose yields surpass those of Argentina is Venezuela. Needless to say, it’s never good when your economy is being compared to Venezuela’s…

An economist quoted in La Nacion this evening reiterated this point, stating “The value of the bonds is high…an interest rate of 8.75% was very attractive to the market as that is above what is paid in the region.”

Unfortunately, Kicillof and the Argentine government are so desperate for funding after being isolated from the international capital markets that they are willing to take any price.

By issuing the BONARs at 9%, with the excess cost of 5% per year, Minister Kicillof has wasted roughly $630 million.

Issuing this type of over-priced debt is a lose-lose for Argentina. Argentina could be borrowing at the rates of its peers, saving the country hundreds of millions of dollars. There is no reason Argentina should be offering debt at yields this high while its peers issue debt at such lower prices. The only obstacle standing in the way is Argentina’s refusal to sit down with its creditors and negotiate a resolution to its long-standing debt dispute.

Today’s actions demolish whatever was left of Argentina’s credibility regarding the claim that it wants to solve this dispute.  Rather than taking actions to begin a dialogue with creditors – the only path to a solution – Argentina has defiantly issued new bonds that are very likely subject to the pari passu clause in its defaulted bonds from 2001. The only reason the current Argentine government would take such a costly, short-term step is if it had no intention of sitting down with creditors, and simply wished to pass this large and growing problem to the next administration.

As usual, Minister Kicillof’s “win” is Argentina’s loss.