Neuquen broke through a wall Oct. 11, when the Argentine province priced the first cross-border bond backed by onshore assets from the country in the aftermath of the 2002 crisis. But, judging from the stripe of investors that bought in, and the barriers to other provinces, the placement doesn’t seem to herald foreseeable change from the status quo. That is, Argentine originators will keep massing into a vibrant domestic market and eschewing a shriveled cross-border one.
Led by Citigroup, the $125 million, eight-year transaction priced at 8.656%, the lowest yield achieved by an Argentine province, according to a press release by Neuquen. Standard & Poor’s graded the deal BB-‘, a no-no for investment-grade investors but a nice fit for the ilk of buyers that has purchased the high yield Argentine corporate paper that Citigroup has peddled over the last two years. “It was basically the same group of investors,” that had bought into deals for issuers like Cerveceria y Malteria Quilmes, Pan American Energy, and Banco Hipotecario, according to a source close to the deal.
More traditional securitization investors, the kind that generate a critical mass for future ABS deals, appeared to shy away. One that had once overseen an expansive portfolio of Argentine structured paper, largely shed over the past few years, said that convincing a credit committee to return to the country is an uphill struggle. “A lot of us were in deals that worked out well,” the investor said, “[But still] we haven’t gotten over Argentina.”
The number of buyers in Neuquen – more than 45 – point to a highly fragmented base, considering the deal’s limited size. Investors came from the U.S., Europe and Argentina, with those in the U.S. taking more than a third, according to the source close to the deal.
While an energy crisis is gripping the country, the source said investors didn’t express concern about its impact on a transaction backed by royalties tied to three oil fields in Neuquen. “The situation could get worse but it could also improve,” he said (ASR, 10/9/06).
Other Argentine provinces have been eying this transaction, but the source said that there aren’t many that have the royalty revenue or fiscal standing to place a similar deal. Before the crisis, the provinces of Salta, Mendoza and Tierra del Fuego had collateralized their royalties. Salta, with the only deal outstanding before Nuequen, has fallen behind on payments – allowed under flexibility built into the bond – but has never defaulted.
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