Tango and cash
If you had said one year ago that Argentina would raise the largest bond ever from an emerging markets sovereign, you might well have been laughed out of the room.
The nation was a default pariah, locked in a seemingly endless battle with hard-nosed hedge funds that rejected the terms of a debt restructuring – and wanted to be paid in full.
But new President Mauricio Macri came to power, insisted on reaching a deal with the nation’s holdout creditors, and paved the way for Argentina’s return to the international markets.
The result was a landmark US$16.5bn bond.
“The Argentina trade is never going to be replicated,” said Dennis Eisele, head of EM syndicate at Deutsche Bank, a joint global coordinator with HSBC, JP Morgan and Santander.
Even after Macri made it clear he wanted a deal with the holdouts, the assumption was that Argentina would pay them off wholly or partly in bonds – securities that were expected to come with hefty coupons.
But Macri’s finance team took a different tack, betting on Wall Street’s advice that it could raise US$10bn or more from international investors at much lower costs.
That was far from a foregone conclusion for a country still in technical default, and one facing significant legal challenges in the US courts.
“Everything needed to take place with a perfect seamless execution in order to have a successful offer,” said Katia Bouazza, HSBC’s co-head of global banking for Latin America.
The process also involved an unusual dual-stage settlement mechanism to ensure that a pari passu injunction handed down by the courts was lifted by paying the holdouts first.
Argentina set off on a five-day roadshow to market a deal comprising three, five, 10 and 30-year tranches in an effort to appeal to the broadest audience possible.
Many investors vowed they would never buy a 10-year from Argentina for less than 8%. But yet again, the sovereign defied expectations.
Not only did it secure a 7.5% yield on that tenor, but it generated a truly remarkable US$69bn of demand for the entire deal from over 800 accounts.
That book still stands as the largest in emerging markets history, even surpassing the US$67bn in demand seen on Saudi Arabia’s US$17.5bn bond in October – the deal that broke Argentina’s record for largest EM deal ever.
And the deal helped re-establish Argentina on the international stage as a nation open for business.
“This was a huge step forward in terms of the confidence of investors to continue to put money into the country,” said Sergio Lew, head of US credit markets at Santander.