Argentina to Market $12.5 Billion Bond Offering

Argentina’s government plans to meet next week with investors in New York, Washington and Los Angeles as a concrete step toward raising money in global debt markets for the first time since the country’s 2001 default.

Officials headed by Finance Secretary Luis Caputo are scheduled to lead a “road show”marketing a $12.5 billion bond offering in the U.S. and U.K., according to a letter reviewed by The Wall Street Journal on Thursday.

The government plans to use proceeds from the offering to pay back holders of the country’s defaulted debt, following the settlement of a long-running legal dispute earlier this year. Morgan Stanley estimates Argentina will need to raise $20 billion in external debt in 2016, making it the largest emerging-market sovereign issuer this year and raising concerns on Wall Street that the South American nation will struggle to find buyers at suggested yields.

Argentina’s largest challenge will be gathering interest beyond traditional emerging-market investors, analysts said. About $5 billion of the new debt is expected to be purchased by index investors seeking to track their benchmarks.

Finding enough buyers may not be easy, said Siobhan Morden, head of Latin America fixed-income strategy at Nomura.

While analysts expect that Argentina’s bond ratings will eventually rise, now they are low-rated thanks to the nation’s history of defaults and yields look low relative to that rating.

Investors have balked at the 7.5% yield Argentina has so far floated on the 10-year notes. The yield Argentina has offered is similar to that of Petróleos Mexicanos’ issuance in January, an investment-grade issuance half the size of Argentina’s.

“My only concern is price,” said Bianca Taylor, a senior sovereign analyst covering Latin America for Loomis Sayles & Co., which has $16 billion in emerging-market assets firmwide. “We think 7.5% is not enough yield for someone who is coming to market with what looks like it could be the largest sovereign-bond issuance in history.”

Jorge Piedrahita, chief executive officer at Torino Capital, a New York-based investment bank and broker-dealer, said he thinks investors should stay away until prices fall.

Prices on Argentina’s benchmark bonds due in 2033 have risen 3.6% so far this year to 119.750 cents, according to BondTicker data. Yields fall as prices rise.

But the country is struggling to cut costs to help plug a massive budget deficit. The economy is expected to contract this year and inflation could rise above 35%. With more large debt issuances expected out the Argentine provinces at higher yields, some investors say that could push prices down for the sovereign debt they snatch up.

“You’re not going to be short of opportunities to buy Argentine paper,” Mr. Piedrahita said.

Argentina defaulted on more than $80 billion in 2001, the largest sovereign default at the time. The government has been trying to reach agreements with various groups of bondholders since then.

President Mauricio Macri’s administration reached a deal in February with a group of holdout U.S. hedge funds led by Elliott Management Corp. that paved the way for the country’s return to the international debt markets.

Under that settlement, Argentina has said it would pay creditors $4.65 billion by April 14. But some Argentine officials indicated this week that they may not make that deadline, which some analysts said could complicate or delay the government’s plans to issue the new debt.

A hearing on that matter is scheduled for April 13 in Manhattan. The roadshow is scheduled to end on April 15.

The letter was sent to potential investors by Deutsche Bank AG, one of four lead underwriters. The others are HSBC Holdings PLC, J.P. Morgan Chase & Co. and Santander Group along with bookrunners Banco Bilbao Vizcaya Argentaria SA, UBS Group AG and Citigroup Inc.

Paying off its holdout creditors won’t be Argentina’s only financing need this year, as it struggles with a primary fiscal deficit, excluding interest payments, of an estimated 4.8% of gross domestic product, according to Morgan Stanley.

Marco Santamaria, co-head of the emerging-markets multi-asset team at AllianceBernstein, with $22 billion in emerging-markets assets under management, said he has questions about how Argentina plans to increase revenue and cut costs.

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