Argentina will on Monday pay the $5.9 billion maturity due for its Boden 15 bonds in cash and issue new debt the following day, Economy Minister Axel Kicillof said on Friday. The South American country, which is in default on some debt because of a legal fight with bondholders in the United States, targets raising $500 million in the auction of notes under Argentine law, Kicillof told a news conference.
The new Bonar 20 bonds will carry an 8 percent coupon, said the minister who added the final amount to be sold would depend on market appetite. Investors would likely demand costly double-digit yields, said Jorge Piedrahita, CEO at broker Torino Capital, in the global context of china's slowdown, volatility in emerging markets including neighboring Brazil and uncertainty over the timing of a US interest rate hike. Argentina's public institutions, like the pension funds, which hold Boden 15 notes, may offer softer terms for the new debt.
"It has to yield double digits for investors to "voluntarily" buy it," said Piedrahita. The Boden 15 capital and interest payment on Monday is set to take a large chunk out of foreign reserves that stand at $32.453 billion. Argentina uses those reserves to pay debt, finance imports and prop up its currency. Net foreign reserves, which exclude Argentina's currency swap with China and reserve requirements for private banks, are estimated by economists to be much lower - between $14 to 16 billion and less than three months imports cover.
The Boden 15 payout means net reserves could drop as low as $8 billion. Piedrahita said the dollar-strapped government whose mandate ends in December may be willing to pay a high price to shore up those low foreign reserves. President Cristina Fernandez's government has also printed new pesos to finance extra spending ahead of the October 25 election. Fernandez "is leaving a financial bomb for the next president," said Piedrahita. Whoever wins the presidency will have to resolve the decade-long legal-battle with "holdout" bondholders who rejected the restructuring terms after Argentina's record default in 2002 in order to improve the government's financing options.