NEW YORK & MONTERREY, Mexico--(BUSINESS WIRE)--Despite a lack of resolution to the sovereign default and its implications for the rest of the country's debt, the presidential election in this year and foreign exchange (FX) risks, local Argentinian governments' successes in selling their debt on the international markets suggest that they will be able to refinance and issue more debt in the near term, Fitch Ratings says.
In February, the City of Buenos Aires (CBA; rated 'CCC' by Fitch Ratings) issued a USD500 million bond under a USD2.3 billion medium-term note program. This note is denominated in dollars, will accrue a fixed interest rate of 8.95% and is payable on a semiannual basis. The maturity is six years, having annual payments during the last three years. The issuance allowed the CBA to rollover some debt that would have matured this year and improve its debt profile. However, CBA's debt is largely denominated in foreign currencies (mainly U.S. dollars). As of March 2014, 98.6% of its debt was denominated in dollars, compared with 97.7% in 2013. Despite CBA's low level of indebtedness, in our view, its high exposure to the FX rate risk is a primary driver.
The Province of Buenos Aires (PBA) recently issued a USD500 million note denominated in dollars due in 2021 that accrues a fixed interest rate of 9.95%. With this note, the PBA was able to exchange 75% (USD 375.4 million) of debt set to mature in October and fund some infrastructure projects.
Several other provinces are also exploring issuing in the international market to refinance debt services, longer maturities and amounts and raise funds for infrastructure. However, many are also exposed to foreign currency.
According to the Fiscal Responsibility Law, any debt should be authorized by the sovereign. This may affect the process, due to authorization delays or if the amounts requested are not authorized. Except for San Luis, La Pampa and the CBA, all other state and local governments have adhered to this law. Despite international investor interest, the process could be complex and time consuming, as it requires political negotiations with the sovereign.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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