Last Friday, the Governor of the Province of Buenos Aires (PBA) Axel Kicillof He went to the intersection of the Minister of Economy, Luis Caputowho criticized the approval of the financing project by the Buenos Aires legislature. In a few words, the Peronist leader rejected the criticism and stated: “Let them approve it as soon as I send it off. Quickie Toto.”
Furthermore, he added this “What I mean is that the debt was not approved yesterday. The law is called refinancing and it simply covers the maturities of the debt that the province has had since the time of Vidal.”
Kicillof was very short in his answer and left no room for criticism from Nación: “Let him approve everything he needs to approve because he can’t cause us any more trouble. They owe us 13 billion pesos, so I don’t even know what the libertarians are talking about.”he explained.
Debate on the Guzmán law and the debt
What Kicillof doesn’t understand is the call Guzman lawThe law, named after former Economy Minister Martín Guzmán, does not allow provinces with a budget deficit to take on debt. On the other hand, there is a government law from 2004 Nestor Kirchner which also prohibits this type of debt.
But the worst thing, according to some libertarian MPs from Buenos Aires, are the previous negotiations that Kicillof conducted to authorize these debts for a few 3.9 billion dollars.
“There are libertarian lawmakers from Buenos Aires province who will call on their friends and partners to return the money they stole from the province instead of speaking here about what we need to do.”the governor added.
In this sense, he again asserted that the provincial government will continue “By appealing to the Supreme Court, he agrees with all provinces.
Certainly we hope that they will receive us soon, and then Milei will give us back what he stole, not from this governor, not from this government, but from the people of Buenos Aires.”
Security Fund and Nation-Province Dispute
“We are not talking about financial problems, we are talking about police cell phones that were paid for with resources, the security fund that the nation gave us and that Milei stole to generate this alleged false surplus.”Kicillof said, referring to funds he said were no longer being sent.
It should be noted that the Financing law The law, approved last Thursday by more than two-thirds of the Buenos Aires legislature, aims to guarantee the payment of debt services largely inherited from previous governments, especially during the administration of Maria Eugenia Vidal.
Caputo’s criticism of the province
Kicillof’s words were a response to criticism expressed by Minister Caputo during a television interview on A24.
Caputo targeted Kicillof right after the Buenos Aires legislature approved the province’s new debt.
“Buenos Aires does not comply with the law on fiscal responsibility”started the minister and warned him “Technically, what is new debt today should not be subject to approval because it does not comply with the law.”
According to his diagnosis, the province “Current spending increases above inflation”a detour that the economic team has been marking in meetings with the governors for months.
Caputo formulated the conflict in the discussion about it “Argentinian costs” and claimed that some of this burden was concentrated at subnational levels.
Expectations for future tenders
“This is one of the problems when we talk about Argentine costs, which today are much more concentrated in municipalities and provinces than in the country. We are reducing taxes and stabilizing the macro, which helps reduce Argentina’s costs of placing debt on the markets.”
In this regard, it is worth noting that next Wednesday two pieces of information will be released that will put local market and Wall Street operators on alert.
The first question is how much money Argentina will receive at what interest rate. The announcement from the Ministry of Economic Affairs states in the tender what the funds raised will be used for “partially cancel” the capital terms of the Bonares 2029 and 2030 on January 9th.
These terms are sufficient 1.2 billion dollarsincluding 138 million (11% of the total) in the hands of the state.
In this context Eric Ritondalesaid Puente’s chief economist iProfessional that “he hopes that, given the ample dollar liquidity available in the local market, the Treasury will renew this amount and raise additional funds.”
The key is inside how many dollars the government gets.
Return to the international market
Last week the president Javier Milei and the minister Luis CaputoIn two business events there were hints of the obvious possibility that Argentina will again place debt on the international market, which Caputo confirmed last Friday.
The government needs to go out and look for some 4.5 billion dollars to meet the January 9th deadlines. The international insurers would include JP Morgan, Bank of America, Morgan Stanley and Santander.
The data the economic team was waiting for arrived as the province Santa Fe carried out the first successful placement of debt abroad.
Although the amount achieved is important, what is most relevant is how much international investors bid, especially from USAand at what interest rate and with what term these debts were taken out.
Santa Fe’s placement and market surprise
That was the surprise Santa Fe was looking for $500 millionbut he has 800 million dollars out of the 1,800 the market ultimately offered. There was one Oversupply of more than three times the requested value.
But what surprised local market and Wall Street operators is this Rate of 8.1% per year and the Term of 9 years This was achieved due to Santa Fe’s low debt and the fact that Argentina is showing today better macroeconomic data of the region, with organized accounts and with a government that will have the from December 10th first majority in the Chamber of Deputiessomething that hasn’t happened with Carlos Menem since 1989.
Historical comparisons and precedents from 2017
The step that the Milei government will take in the next few hours has not been seen since July 2017, when the government of Mauricio Macri placed a bonus 100 years in the international market with a country risk of 350 basis points, compared to the current one, which aims to break that 600 points and with the expectation of going down 450-500 points if the treatment of the 2026 budget makes progress.
At that time, the Ministry of Finance issued a 100-year bond for $2.75 billion at a rate of 7.125%.
Another positive factor was the successful placement of debt by private companies Negotiable Liabilities (ON).
This expenditure in dollars reached the Record $3.15 billionaccording to estimates based on official reports. The amount reflects strong movement in the energy sector, particularly among companies related to it Dead cowas YPF.
Impact of the return to the debt market: limits and conditions
Caputo’s announcement about Argentina’s return to the debt market could have an immediate impact on asset prices and serve as a signal economic normalization.
But the result will depend on it How many dollars does Argentina get? and des rateabove the coupon from 6.5% already confirmed.
Because it is a placement under Argentine lawthis is a limited return. In order to be able to fully re-enter the international voluntary market, the amount of emissions should be low New York lawlike global bonds. The market expects a lowest country risk.
However, the operation consolidates this path, as does lending Repos takes place in January and June.
Furthermore, the government’s decision eliminates the possibility of restructuring or defaulteven if there are currency and exchange rate problems. A successful amount should eliminate these fears among investors.
In the short term, access to dollar-denominated debt helps temper expectations devaluation.
The Treasury will need less foreign exchange to cover maturities and this will remain the case more dollars available on the foreign exchange market. Caputo also pointed out that now the BCRA will buy dollars within the exchange band.
Features of the new bonus
According to the Ministry of Economic Affairs, the title is intended to refinance the company’s maturities Bonares AL29 and AL30will pay a 6.5% annual coupon with semi-annual payments and will have a structure Bulleti.e. full amortization when due.
Initial estimates suggest that the new bonds could generate returns almost double digitsalthough factors such as the difference between the MEP dollar and the “Cable” and market movements leading up to the December 10th tender could affect performance single digit.
PPI projections
The latest analysis from Personal Investment Portfolio (PPI) pointed out that in order to achieve one IRR of 10% per yearthe placement price should be at $89.5 per 100 from nominal value.
PPI also pointed out that if the bond was priced on the local yield curve, the interest rate would be consistent with a IRR close to 11.5%This reflects the lack of medium-term references for this type of instrument.
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