December 12, 2013
Deadline nears for US$
Retail investors interested in getting their hands on dollars legally will soon have one fewer choice.
The dollar-denominated Bonar VII sovereign debt bond matures on September 12, and with it, the last chance to obtain dollars on the bonds market until 2015.
Considering it is nearly impossible for any retail investor to obtain dollars at the official exchange rate in Argentina, dollar-denominated bonds have become increasingly popular to obtain the greenback without having to resort to the illegal market.
And given how close it is to maturing, the Bonar VII is suddenly an increasingly attractive option.
As usual, the bond is getting more expensive as its maturity nears. But considering how close it is to paying out the principal, the spread with the “blue” market remains significant. The implicit exchange rate in the Bonar VII, which can be bought in pesos, is 8.68 pesos, almost a full peso less than the “blue” dollar that was selling for some 9.45 pesos Friday.
Paying the bond next month will mean a 2-billon-peso expense for the federal government, President Cristina Fernández de Kirchner said recently.
“This bond has been of increasing interest to investors over the last few months,” Mauro Morelli, a broker at Rava, told the Herald. “Its sale volume has grown significantly. Its implicit dollar price is quite high, but it’s really the strategy investors now have to obtain dollars legally,”
Alejo Costa, head strategist at Puente, a local brokerage, agreed with Morelli and told the Herald that the Bonar “is the closest thing to a risk-free dollar bond” and therefore very attractive to investors in an economy that continues to crave for the dollar.
“Most of the market reached a consensus that the bond is going to be paid and that the Central Bank has sufficient reserves to pay it,” he said. “The bond didn’t suffer major price changes. It had a low volatility.”
The Bonar VII is easy enough to get for anyone with a checking account.
“A large number of investors are choosing to buy this bond,” Santiago Llul, vice-president of Futuro Bursátil, told the Herald. “The transactions with this bond are double other financial instruments, it’s impressive.”
Brokers largely agree that the two years in which there will be no way to obtain dollars through bonds will likely lead to a higher demand for dollars on the parallel market.
“It’s certainly a possibility that more people will go to the illegal market to buy dollars,” Morelli said. “The price of the Boden 2015 will probably also rise,” he added, referring to the next dollar-denominated sovereign debt bond to mature.
choosing to reinvest
And while many are buying the Bonar to get their hands on the dollars, others will be looking to get rid of the paper before its expiration in order to buy the Boden 2015. Cashing out on the bond could translate into an expensive proposition for businesses that would have to include the cash in their balance sheet at the official exchange rate.
Some argue that they should be looking at even more long-term choices.
“There are companies and investors that have been buying Boden 2015 so as not to have the dollars in cash,” Costa said. “But they should think more strategically since long-term bonds are more profitable.”
For those willing to take on more risk, longer-term bonds may be the way to go considering an investor could buy dollars at 4.75 pesos - although he or she would have to wait until 2017 to get the cash. The Bonar X has an implicit exchange rate of 5.10 pesos and the New York Global 2017 (GJ17) has an implicit exchange rate of 4.75 pesos. The GJ17 is seen as particularly risky now because it could be directly affected by the New York appeals court order requiring Argentina to pay US$1.3 billion to creditors who have rejected restructurings on the country’s defaulted debt. The decision is on hold until the Supreme Court decides whether to take the case, a process that is likely to take months.