Argentine corporate bond funds stuck in limbo after controls

Argentina’s recently imposed capital controls are now creating impediments for bondholders looking to collect payments as their securities come due.

Funds deposited by real estate firm IRSA Inversiones y Representaciones that were deposited on September 9 haven’t reached foreign accounts and settlement company Clearstream said in a statement that the new restrictions on non-resident investors is behind the inability to distribute the capital and interest.

“This restriction implies that any income and redemption proceeds due in currencies other than Argentinian pesos may not be collected on or paid to any account held by any legal person outside Argentina,“ according to the Clearstream statement. “Foreign currency proceeds to be collected will remain on hold until further notice.”

Argentina unveiled a series of capital controls at the start of this month as President Mauricio Macri responded to a plunging peso draining government reserves after his poor showing in a presidential primary vote. Among the measures is one that limits non-residents to extracting a maximum of US$10,000 per month from the country – a negligible amount for some investors. The debacle with IRSA is the first impact for corporate-bond payouts stemming from the controls.

Because Clearstream is considered a “legal person,” even if the underlying owners are retail investors they are also affected by the capital controls, the company said.

IRSA said in a notice sent to the securities regulator that while it paid its bond in a timely fashion, it’s aware that holders with custody abroad had not been able to collect their payments. In its statement, the company advised holders who did not receive capital or interest payments to consult their custodians on the applicable foreign exchange rules.

The US$185-million bond, a local law note denominated in dollars, carried a seven percent coupon and was issued in 2016.

Argentina has already changed terms for some local government notes to push out maturities and wants to sit down with foreign investors and the International Monetary Fund to discuss an agreement to extend future payments.

The abrupt sell-off and crisis triggered by the August 11 primary vote where the opposition trounced the market-friendly candidate, has further complicated Macri’s re-election chances and raised concerns about the economic and financial situation that the next government will inherit.

For foreign investors who have invested in local currency or legislation securities, there are loopholes to move money including an operation known as the “blue-chip swap rate,” through which they purchase certain types of shares or bonds in the local market with pesos, and subsequently sell those securities abroad for dollars. But the government is putting additional restrictions to clamp down on certain transactions.

– Bloomberg