Argentina Launches Century Bond

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Argentina has issued a landmark sale of $2.75bn worth of US dollar-denominated bonds maturing in 100 years, a dramatic market rehabilitation for a nation that spent more than a decade fighting investors over the fallout from its 2001 default on $100bn of debt.

The country only removed currency controls in 2015, and has yet to gain an investment-grade credit rating, but investors have been enthused by President Mauricio Macri’s appointment of market-friendly officials and introduction of reform measures.

Argentina issued $16.5bn of debt in a record return to the market in April 2016, after Mr Macri cut a deal with creditors who had refused to accept a restructuring of defaulted debt. It has since issued bonds in a variety of currencies and maturities.

Joining only a handful of sovereign borrowers to sell century bonds, Argentina’s move on Monday also highlights a broader enthusiasm for emerging market securities. Over the past 12 months the JPMorgan index of such dollar-denominated securities has produced a 9 per cent total return for investors.

Adam Bothamley, head of debt syndicate for HSBC, said the deal came after inquiries from investors suggested demand existed. “It’s less about it being a 100-year maturity bond, it’s a way to express the strongest view around the trajectory of the story for investors”, he said.

The sale came a day before the global index provider MSCI is expected to upgrade the status of Argentina’s equity markets from “Frontier” to “Emerging”. The benchmark Merval stock index has risen 28 per cent this year.

The $2.75bn century bond was issued with a coupon of 7.125 per cent and at a slight discount to its face value, equating to an annual yield of 7.9 per cent, according to a statement from the Argentine finance ministry late on Monday.

“Such an issuance is possible thanks to our recovery of the world’s credibility and confidence in Argentina and in the future of our economy,” finance minister Luis Caputo said in a statement.

However, some investors were sceptical about a country with a patchy record of repaying its debts issuing a century bond. Argentina has defaulted on sovereign debt on eight occasions since independence in 1816, and its 2001 default was at the time the world’s largest.

Paul McNamara, a macro investor for Gam, said: “One hundred years, really? That implies a major change in the country’s political culture.”

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In recent years Mexico has issued 100-year debt denominated in dollars, euros and sterling, and in 2015 the Brazilian oil company Petrobras sold $2.5bn of century bonds, which on Monday traded at a yield of 7.8 per cent. Mexico’s sovereign century bond, issued in 2010, currently yields 5.5 per cent.

At a yield of almost 8 per cent an investor would recoup their initial investment in the bond in around 12 years, while improvement in Argentina’s prospects might push up prices for the debt.

“Buying 100-year bonds in emerging markets can be a profitable thing to do,” said Brett Diment, head of emerging market debt for Aberdeen Asset Management.

He pointed to a 100-year bond issued by China in 1996, now yielding around 4.25 per cent. Rarely traded, market prices suggest it has more than doubled in value since it was issued.

Argentina is rated single B by credit rating agencies. The lead bookrunners on the deal were Citi and HSBC, with Nomura and Santander acting as co-managers.

Mr Caputo stressed that Monday’s bond sale showed “prudence and responsibility. We are taking advantage of a moment of very low rates worldwide and it is important, then, to balance the terms of indebtedness”.

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