Argentina’s YPF (YPFDAR) successfully issued a US$500mn, 8.50% bond with a 10-year maturity, rated single-B and priced at US$98.356 to yield 8.75%. This is the first corporate credit issuance to come out of Argentina since April 2018.
The yield was lower than the initial price talk (IPT) of “low 9.0%s” (later revised to 8.875% +/- 12.5) and priced lower than the comparable sovereign bond (ARGBON 7.875% bonds due 30 December 2027 that is currently trading at cUS$77.21 – ALLQ – to yield c13.18%). Still, this demonstrates investor confidence in the business, its outlook and fundamentals, and financial strength.
According to a local newspaper Cronica (citing “people familiar with the deal”), the issue might have been the result of a reverse inquiry from investors – who had agreed beforehand on a range of acceptable yield levels – to go ahead with the deal. Given how tight the deal was priced to the sovereign, there are reasons to believe that there might indeed have been conversations between investors and the company beforehand. In our view, this would also explain why the issue size was limited to US$500mn versus the US$1bn that we initially expected.
We reiterate our view that the yield is still attractive, despite trading substantially tighter than the sovereign. The new bond already trades at cUS$99.059, higher than its issue price of US$98.356 (that initially yielded 8.75%) to yield 8.64% (g-spread 664bps; z-spread 675bps) at current prices, and have a duration of c6.914 years. Other comparable YPF bonds like YPFDAR 6.95% senior unsecured bonds due 21 July 2027 (B/B), currently trades at cUS$91.31 (ALLQ) to yield 8.45% (g-spread 654bps; z-spread 663bps) and have a duration of c6.017 years.
We believe that YPF’s positive business outlook, supported by rising oil prices and the expected substantial investment in the development of the ‘Vaca Muerta’ natural gas basin (believed to be the second largest in the world), provides a good opportunity for investors to add or hold YPF paper. In addition, improving business sentiment towards Argentina with President Mauricio Macri polling better recently, should all result in further spread tightening for Argentine assets in general, and for YPF in particular.