Fixed Income Analysis /

Argentina: Corporates offer shelter from the storm

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    2 October 2019
    Published by

    During our recent visit to London, we met with a series of investors and saw that the topics of interest were heavily skewed towards Argentina. In particular, investors are asking which Argentine companies, if any, are best placed to weather the ongoing crisis in the country. In this report we focus on these corporates.

    Argentina’s economic crisis rumbles on. In order to try to determine which companies are best positioned to cope with a potential worsening of the country’s economic and fiscal situation with the arrival of a new government in December (if not earlier, on 27 October, when the elections take place), we need to look for defensive criteria.

    The criteria we focus on are companies that: 

    • Are strategic to the country (such as the IPPs). 
    • Have strong balance sheets and comfortable debt amortization schedules.
    • Have dollar-linked or dollar-denominated revenues. 
    • Should not see changes in their legal frameworks.

    Companies that meet some or all of these criteria include Independent Power Producers (IPPs), energy firms, and the country’s main airport operator.

    In this report we profile the following companies:

    • YPF (YPFDAR). 
    • Panamerican Energy (PANAME). 
    • Pampa Energia (PAMPAR). 
    • Aeropuertos Argentina 2000 (AEROAR). 
    • Genneia (GNNEIA).
    • Stoneway (STNEWY).
    • Albanesi (ALBAAR).
    • MSU Energy (MSUNRG).

    Independent power producers may be protected in the storm: The four main Independent Power Producers (IPPs) are electricity generation companies classified by the Argentine authorities as “new energy” or “new power” given that they are all companies that generate power through combined cycle plants, whose feed comes from natural gas provided by the government’s energy wholesaler CAMMESA. 

    The main question regarding their viability and their ability to remain current on their debt service is: Will the government respect the Power Purchase Agreements (or PPAs) whereby these companies receive dollar-linked revenues, in pesos, paid at the exchange rate within a range of dates from the time of their respective service invoices, effectively protecting them from most of the devaluation risk?

    We are hopeful that the new government will respect the PPAs and leave their structures as they exist at the moment. If that is the case, we believe that this sector offers good value, since the bonds of these companies have traded down substantially due to these uncertainties surrounding the treatment of the existing PPAs.

    Coming soon: Capital Markets Argentina is joining the Tellimer platform. They provide a mix of equity, fixed-income and macro research, covering 21 Argentinian stocks and credits as well as the sovereign. More details are available here