Friday, April 24, 2015

Reserves soar as bonds bring relief

Central Bank Governor Alejandro Vanoli speaks at a conference on Wednesday.

Reaches US$32.675B as YPF sells US$1.5B in debt amid high demand

Successful debt issues are bringing relief to Central Bank coffers, with Tuesday’s US$1.4-billion bond sale boosting reserves by US$1.25 billion to reach US$32.675 billion, the highest level of foreign currency reserves since November 2013.

YPF also received good news from the debt markets yesterday as its planned US$500-million bond sale ended up turning into a US$1.5 billion issuance. The state-controlled oil company received money at slightly better rates than the government, 8.5 percent compared to 8.75 percent, and rejected several bids from a market that seemed eager to invest in the company, having offered US$4 billion overall.

The improved level of reserves comes as the country faces debt repayments of more than US$6 billion on its Boden 2015 in October, although the government has said it will use the funds to finance housing projects rather than pay debt.

Combined with the soybean harvest season, the debt sales have given authorities more room to authorize imports.

“We are increasing the payment of imports significantly, in March they were up 30 percent,” Central Bank chief Alejandro Vanoli said yesterday.

Over the last few weeks, Argentina’s foreign reserves had not moved up significantly, but no complaints had been heard from importers or consumers about missing products on supermarket aisles either. Now, the monetary authority’s coffers are filling.

Vanoli added that he sees “no risk” of New York District Judge Thomas Griesa or the group of unrestructured bondholders who are clashing with Argentina in US courts interfering with bond payments.

For the time being, Griesa only authorized a “discovery” order on the details of Argentina’s bond issue, but did not back NML Capital’s suggestions that the country was stepping out of bounds from the restrictions the judge imposed on the country until a settlement is reached with the “vulture” funds.

Dollar sources

These are not the only dollar sources that the Central Bank is counting on to secure an orderly 2015.

Yesterday, the Economy Minister announced that by the end of the month a new series of BAADE bonds would be issued. Those bonds can be used to legalize undeclared cash as part of a tax amnesty law approved in 2013, which also included the creation of the CEDIN bonds for real estate transactions.

In addition, the Central Bank said this week it had captured an additional US$80 million since it upped the interest rates offered for fixed-term dollar deposits on banks. That cash will also increase the country’s reserves, although interest rates of up to 4.7 percent will have to be paid to banks in order to get the favourable rates.

Since the January 2014 devaluation, the Central Bank has also been purchasing pesos through its LEBAC notes, thus reducing the amount of circulating money that could end up turning into dollar purchases.

Part of YPF’s debt issue could also end up in the Central Bank’s coffers when it’s converted to pesos, while rumours about a new bond by the country are already starting to circulate after this week’s success.

YPF details

The fact that YPF obtained better rates than Argentina could be explained by a combination of factors. On one hand, although there is nothing yet to suggest that NML Capital or other hedge funds litigating against Argentina could block the repayment of Bonar 2024 bonds, YPF is even further away from the reach of the so-called ‘vulture funds’, as it trades on Wall Street.

Additionally, the US$4 billion offered to YPF allowed the company to finally sell at prices below initial guidance rates of 8.75 percent.

“It’s an energy company that is not very indebted that is offering paper with a coupon that is high compared with the rest of the world,” said Christian Reos, an analyst at Allaria Ledesma, a brokerage.

In February YPF sold US$500 million of bonds, a third less than it had offered, as many bids were for higher yields than it would accept.

YPF says it needs US$200 billion in investment to develop the promising Vaca Muerta shale formation.

The company says it has about 300 wells producing up to 45,000 barrels per day of oil and gas equivalent at the site, a fraction of Vaca Muerta’s potential.

—Herald with Reuters and DyN