This Tuesday the Ministry of Economy will hold a new dollar bond sale governed by foreign law. It will issue in total, under the modality of exchange of papers, titles for a nominal value of $ 750 million and investors will be able to pay them with debt papers in pesos that they have in their possession. It is the second tender of this type to be held after the debt swap. The first was in early November. Economy wants to deliver the dollar bonds to funds that are wanting to get dollars in the “cash with liquidation” market. Offering those bonds would be a way to decompress that market and keep the exchange rate gap at bay.
The interesting thing about this tender is that the Government will deliver to private investors papers such as global bonds 2030 and 2035, which are already traded on the secondary market at a price 39 and 35 dollars respectively per 100 of face value.
Given the expiration dates and the market price, they are papers that this Friday showed an implicit return for the buyer of 16.09% per year for the 2030 bond and 14.64% for the 2035 bond. They are rates very similar to those observed in the first tender.
Rates are calculated every day at the close of the trading round, and are published, for example, in the daily report prepared by the Argentine Institute of Capital Market (IAMC).
The placement of last month and the one that will be made this Tuesday occur at the same time that the rest of the world issues debt at the lowest rate in history. European debt yields 0% or less, Peru days ago placed a 100-year bond at a rate of 3.75% and Brazil it placed three bonds at 5, 10 and 30 years at an average rate of 3%. Here, as you can see, they are paid astronomical rates, more than double, even, than the famous 7% rate that former President Macri paid on average, denounced as unsustainable by Guzmán himself.
Strikingly, and against the generalized opinion of the market, even of referents openly related to the ruling party, For Minister Martín Guzmán, the interest rate validated by Economía is much lower to which everyone in the markets calculates.
Days ago, before a specific query made by the senator Esteban Bullrich (PRO), Guzmán replied. “This is not an operation in which the State issues bonds in dollars and in return obtains dollars. It is an exchange, through which the Government receives bonds in pesos and delivers bonds in dollars.
The core of the official argument is this. Guzmán said: “As it is an exchange, when that debt is issued you have to auction with titles in pesos. What we obtained is that the implicit rate is in no case 17%. Two bonds were awarded, for the AL30 the rate was 5.63% because they did not buy at the official exchange rate, but investors paid a value close to the 150 pesos per dollar on average. In the case of AL35, the rate was 7.18%”. The official reasoning is that since twice the pesos were received at the official exchange rate, the bonds were sold at twice the market value.
In the market they say that those rates of between 5 and 7% – already very high in a world that tends to rates close to zero- it has nothing to do with reality.
The Economist Guido Lorenzo, from the consulting firm LCG, thus dismantled the official argument:
– Argentina is exchanging debt in pesos for debt in dollars in order to reduce pressure on the exchange gap. Questionable, but it is what he is doing and the Minister says it openly.
– For this, it exchanges bonds and bills in pesos and delivers securities in dollars local legislation. The mechanism to establish the exchange relationship is by tender, that is, it is ‘bid’ to exit.
– As investors / creditors want to leave Argentina, they give pesos per dollar in the free dollar relationship. Therefore, in the exchange of the AL30, for example, they paid $ 5,805 to obtain an AL30 sheet that was worth in dollars at that time US$ 36.95 (implicit exchange rate $ 157).
– As can be seen, the government issues new debt that is worth US $ 36.95 in the market and for which it will have to pay US $ 100 plus interest over the next 10 years. That rate is a little over 17% per year. Guzmán gets into debt at that rate.
– Why does Guzmán say that it is 5.6% for that exchange? Take the $ 5,805 divide them by the official exchange rate ($ 79.35) and builds a fictitious price of US $ 73.16 ($ 5,805 / $ 79.35). So the logic of the Minister is: they paid me the bond at US $ 73.16.
Argentina will have to pay interest and principal over the next 10 years for US $ 100 plus interest and “today they paid me US $ 73.16, a return of 5.63%,” says Guzmán. A lie. You have no reason to think that they paid the bond at US $ 73.16, it is an invention, an entelechy.
– Only the Minister ‘values’ it like that. To show the level of ridiculousness of the number. Imagine if the Treasury goes out to buy debt to reduce debt. Would that title pay for US $ 73.16 when it is worth US $ 37? Doing so would be pretty clumsy.
– It is not done because there are no two prices for the same assetIt is worth US $ 37, not US $ 73. Meanwhile, bonds continue to be distributed to foreign investors at the true (market) price of almost US $ 37, compromising debt sustainability.
– Even assuming the cheating number of the Minister, is borrowing at a rate between 5% and 8% now sustainable? The one that ends up doing business with the gap is the State itself.
This critical reading of the official account was restrained by none other than the financier Javier Timerman –brother of former Chancellor Héctor Timerman- who has a long track record on Wall Street. This is how Timerman responded to the economist related to the Government Sergio Chouza, who defended Guzmán’s position: “Sergio, I support this Government but the reality is one. The bonds have a single value and it is the same for the market and for the Government. If I buy the bond it yields 17% and if I issue it, that’s what I pay. If you show me the opposite, take the Nobel Prize ”.
Harder was the former Secretary of the Treasury Pablo Guidotti. “The Argentine Minister of Economy openly addresses Congress stating that he has issued debt in dollars at a rate of 7% when he issued debt at an annual rate of 17%. If the authorities lie in this way, how will credibility be restored?”
At the same time, Daniel Artana, along the same lines as Timerman, pointed out: “If the government could issue debt at 7% as it says, it would have to issue more and rescue bonds that trade at parities below 40% of their face value. The same product with two different prices does not work. “
Everything seems to indicate that the Government has a story to talk about the debt placed by other administrations, and a different one to talk about its own loans. In that game, anything seems debatable.