Rout in billionaire family's bonds shows no-one trusts Argentina

For all of Argentina’s assurances that a round of capital controls announced last week are only temporary, investors are making the opposite bet.

The evidence can be seen in prices for bonds sold by Argentina’s largest oil driller, Pan American Energy, that come due in May. While the government promises the measures that limit dollar access for companies will be over by then, investors aren’t taking any chances. They’ve dumped the notes, pushing prices down to about 94 cents on the dollar from above par.

The rout in one of Argentina’s best-rated corporate credits – a joint venture of BP Plc, the billionaire Bulgheroni family and China’s CNOOC Ltd. – shows just how worried investors are that the government won’t be able to revive an economy bracing for a record contraction this year. While the official plan is to preserve international reserves by limiting access to dollars through March, shops including Amherst Pierpont Securities and Morgan Stanley say that won’t be enough to shore up the supply of greenbacks.

“Investors expect controls to be extended,” said Lorena Reich, an analyst at Lucror Analytics in Buenos Aires. “No company is immune to the controls or the unfavourable regulations imposed by the government.”

Pan American Energy’s press office declined to comment on analyst and investor expectations. A spokesman for the Central Bank said the government and the monetary authority are carrying out a plan that will dispel doubts on the country’s macroeconomic outlook.

The new rule that most concerns bond investors is a requirement that companies owing more than US$1 million a month from now through March will have to push back their obligations or won’t be allowed to buy dollars at the official exchange rate. The restrictions, which officials estimated would apply to US$3.3 billion of debt, sparked a broad selloff in corporate bonds, with notes coming due in the next six months particularly hard hit.

But securities that mature past that time frame weren’t immune, and the US$167 million of Pan American Energy bonds also suffered, pushing yields on the securities to a five-month high of almost 19 percent.

The company should have enough cash to cover the debt’s maturity assuming it can exchange pesos for dollars at the official rate, according to Santiago Barros Moss, a corporate analyst at TPCG. But if further central bank restrictions limit its access, investors could be in trouble, unless Pan American has overseas bank accounts it could tap, Moss says.

In the meantime, speculation remains that the current foreign-exchange restrictions won’t fix the imbalances that have prompted Argentines to seek refuge in the greenback. The economy is forecast to shrink 12 percent this year, and net international reserves have careened to just US$5.5 billion, according to estimates by Portfolio Personal Inversiones.

“The ‘easy’ fix to Argentina’s reserve problem would be to hike interest rates, let the official exchange rate weaken, or curtail dollar demand,” said Ezequiel Fernández, head of corporate fixed income at Balanz Capital Valores in Buenos Aires. “But it’s no easy choice for the government. So the controls on corporate bond amortisations are here to stay for awhile.”