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Argentine local capital market reforms likely to boost investment

Further reforms designed to develop the Argentine local capital markets will likely increase both foreign and local investment in the country. Despite concerns about overpriced paper and ‘saturated’ international markets, high-quality paper from the sovereign and top tier corporates will keep investors interested.

Aug 17, 2016 // 5:01PM

The Argentine Finance Minister, Alfonso Prat-Gay has announced that the government is looking to implement reforms that will develop the country’s local capital markets, which will boost capital expenditure. He stopped short of specifying what shape the rules would take.

The development of Argentina’s local markets is likely to lead to increased lending from not only local but also foreign investors.

“Argentina lacks a local capital market and the government is keen develop this market as it will spur both local and foreign investors to participate at a domestic level,” said Alan Glass, partner at Buenos Aires Advisors.

He added that by fostering the participation of local investors, foreign lenders would be more willing to play a role in funding at a local level.

Despite concerns of decreasing investor appetite since Argentina’s return to the international capital markets, which saw the sovereign issue US$16.5bn in April and then another US$2.75bn in July alongside a number of international issuances from numerous provinces, it is unlikely that the international markets will become ‘saturated’ with Argentine debt in the near future.

“The country has been out of the markets for 10 years, there will still be appetite,” Glass stated, adding that the country’s credit remained strong.

Furthermore, on the corporate side, the companies tapping the markets at present are Argentina’s top tier entities like Cablevision and electricity utility Albanesi. Glass noted that due to the high quality of the corporates, there is still a favourable investment climate surrounding the country.

Despite significant deal flow out of the country, a number of investors remained wary of parking new funds in Argentine assets, arguing that the rush for the country’s paper has skewed the pricing, leaving more appealing relative value plays elsewhere.

However, if the government continues with its reforms to open up the country’s markets and set Argentina on an economic recovery path, Argentine paper will likely continue to remain attractive.

In addition, the country lacks solid infrastructure, which will require investments that are seen elsewhere in Latin America such as in Mexico and Colombia. The significant investment required for the development of Argentine infrastructure will keep the country at the forefront of Latin American investment opportunities, analysts suggest.

“The lack of infrastructure means there will be substantial demand for debt from the sector. Argentina is presently the most attractive investment destination in Latin America following the crisis in Brazil,” Glass agreed.

Americas Policy & Government

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