Argentina: Why Invest In Largest Emerging Debtor Of 2016?

Source: BARRON'S
By: Dimitra DeFotis

Argentina is about to sell billions in debt, making it the biggest emerging market sovereign issuer of foreign debt in 2016.

The news came late Thursday that the Argentine government and bankers will be looking for buyers of an estimated $12.5 billion in bonds next week — the first time since its default in 2001 —  and the number will approach $20 billion including debt issued for payments to holdout investors in defaulted debt. Assuming all this comes to pass, should investors buy?

Morgan Stanley‘s Fernando D. Sedano and Robert Tancsa say the forward yield curve implies a 7.5% yield for Argentina’s new five-year bonds, and 8% for new 10- and 15-year bonds. The country’s gross funding needs are significant, excluding the settlement, at 930 billion Argentine pesos (ARS) ($64.2 billion, or 13.5% of GDP). That means more local issuance too. Morgan Stanley thinks there’s enough demand to soak up supply, and they have a “constructive fundamental view on Argentina” and say it offers “one of the most attractive, if not the most attractive, potential within emerging markets.”


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