Argentina’s new president Mauricio Macri has wasted no time rehabilitating the country in the eyes of foreign investors.
In just four months, Argentina has gone from name-calling hedge funds to a landmark deal that will pay the “vultures” $4.65 billion and resolve a 14-year battle that has effectively cut the country off from global bond markets.
Macri has also slashed energy subsidies funded by the nation’s massive budget deficit, lifted capital and currency restrictions, cut thousands of government jobs, and hosted his counterpart, Barack Obama, as he begins to repair relations with the US.
Next week is when it all comes together.
The government has reached an agreement with its hedge fund creditors, led by Paul Singer’s Elliott Management, to finally settle all debts by April 14. That event will pave the way for Argentina to re-enter the global bond markets. And after the long wait, the country doesn’t plan to sit on the sidelines for long. Finance Minister Alfonso Prat-Gay will travel to the Bahamas for the annual meeting of the InterAmerican Development Bank this weekend, seeking $5 billion in loans through 2019. From there, he’ll head to New York for an investor “road show” to raise as much as $12 billion.
Some investors are already growing nervous that the government is planning to borrow too much. Others, however, can’t invest enough. According to Brian Joseph, a partner at Puente, one of Argentina’s largest brokerage houses, Argentine bonds are currently rated at “selective default” but should rank several levels higher at B or B-.
In an interview with Frontera News, Joseph stated that the country’s stock market, among the top performers this year, could soar further if Macri’s investor-friendly reforms convince MSCI to lift the nation back to ‘emerging market’ status from ‘frontier’. Companies that fulfill MSCI’s requirements in terms of liquidity and other metrics include Banco Marco, Banco Galicia, BBVA Banco Frances and YPF.
To hear Frontera’s full interview with Brian Joseph and Puente’s Chief Economist Alejo Costa, click here.
The following is a summary of the main talking points:
1:53 What are the major issues blocking Argentina from reaching a solution with creditors?
5:07 How large is the total payment that the country will have to make to settle with the so-called ‘vulture funds’.
7:01 At what rates do you believe the market will absorb the initial issuance of the expected $12 billion debt issuance?
10:10 What are currently the biggest worries for potential investors? Is it the fiscal deficit (currently 7.6% of GDP), or the government’s ability to make payments due on April 14?
14:01 Which subsidies have the government recently removed? How has the population responded to the 300-400% price increases? Are the rumors about pending reductions in VAT and income tax true?
19:14 Argentina has been internationally criticized for publishing false economic statistics in previous years. Do institutional investors believe that reporting integrity has been restored?
25:25 Argentina has the lowest investment to GDP ratio in the LatAm region (16%). How much policy emphasis will the government be placing on investment versus consumption-driven growth?
28:41 What is the best way for foreign investors to gain exposure to Argentina right now? What asset classes require a local account?
33:45 On the equity side, which listed companies are Puente currently recommending? What are currently the most liquid stocks in Argentina?
36:07 What is your front-running pick for a local equity that is not listed abroad?
38:35 Which Argentinian companies have ADRs that merit a closer look?
40:22 Why do you believe the equities market might contract in 2016? When do you expect the recovery to take root?
43:40 How might a potential Dilma Rousseff impeachment in Brazil impact Argentina?