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Buenos Aires Forum - April 8, 2014

Tuesday, April 8, 2014

Hosted by
tpcg valores s.a.

Hipodromo Argentino de Palermo
3er Piso Tribuna Paddock
Av. del Libertador 4101
Buenos Aires, Argentina

4:00 p.m. Registration

4:30 p.m. Panel Discussion
What the Argentine Investor Needs to Know Now
Fernando Alvarez de la Viesca (TPCG Valores S.A.) – Moderator
Pablo J. Santiago (Banco Mariva)
Jose Siaba Serrate (Economist)
Stuart Sclater-Booth (Goldman Sachs)
Javier González Fraga (Governor, Central Bank, 1989 and 1990 - 1991)
Diego Ferro (Greylock Capital Management)

6:00 p.m. Keynote
Daniel Gonzalez
Chief Financial Officer, YPF S.A.

6:30 p.m. Cocktail Reception  

Additional support provided by Banco Mariva and Goldman Sachs.  

Attendance is complimentary for EMTA Members. The registration fee for non-members is US$395.

Argentine Politics, Hold-Out Situation Debated at EMTA Forum in Buenos Aires

An overflow audience of over 250 market participants packed EMTA’s 7th Annual Forum in Buenos Aires on Tuesday, April 8, 2014.  TPCG hosted the event, which was held at the Hipodromo de Palermo, and which was conducted in Spanish with simultaneous translation.

Fernando Alvarez de la Viesca moderated the event’s panel.  Economist Jose Siaba Serrate started the event with a review of the global economic scenario.  He summarized that growth in the US had not been as strong as had been envisaged, that the Japanese recovery might be in danger following the national sales tax increase, and that there had been disappointments in Europe.  “Generally, we haven’t globally recovered fully from the 2008 economic crisis,” he stated.

Goldman Sachs’s Stuart Sclater-Booth next reviewed recent EM performance.  Sclater-Booth noted that Argentine debt bucked the general EM trend in 2013, rising 19%, while both local debt and hard currency indices had posted negative returns.  At the time of the event, Sclater-Booth stated, EM debt was up 4.2% ytd, outperforming US equities by 300 bps; “not at all what we had expected.”  After reaching historic interest rate lows, a number of EM countries have now entered into a rate-hiking cycle, re-introducing a premium to EM debt and once again attracting investor attention.  With successful bond placements by embattled EU countries (including the imminent Greek bond placement that shortly after the Forum demonstrated further contraction of EU bond yields), the relative value of EM has become more compelling, he argued.

Sclater-Booth saw reasons for optimism for the Argentine economy specifically.  “Many things that seemed impossible six months ago have now improved, including the peso devaluation, improved creditor relations, and changes in subsidies.”

Former Central Bank President and Vice Presidential candidate Javier Gonzalez Fraga discussed Argentine politics.  “In 2015, [after the next Presidential election] the Peronists are not going to retire; they want to come back in 2019 so it is in their interest to soften the political speeches,” he stated.  In addition, FX reserves were an important variable for them, which they viewed as linked to political stability.

Former EMTA Board Director Diego Ferro (Greylock Capital Management) provided his assessment of the current hold-out situation as a stand-off between two “particularly stubborn” counterparts.  In Ferro’s opinion, the government’s decisions were more political than economic, and “I believe if we got the parties together for a weekend, they could find a solution.”  He added that if Argentina rejoined industry indices, inflows into Argentina could offset the payments to hold-out creditors.

However, Ferro did not foresee a short-term resolution as he saw no political will to reach an agreement with creditors.  “What is not clear to me is why from a political point of view the government wants to give this victory [of a solution to the hold-out crisis] to a future government; it’s giving a political gift away, maybe the 2019 elections as well,” he stated.  Finally, he criticized the recent government handling of GDP warrant payments.  “What they did was horrendous,” he stressed.

Sclater-Booth highlighted an “important dynamic” in the ownership of Argentine debt.  In 2012, the country’s creditors were largely EM hedge funds and real money accounts.  However, these funds became increasingly uncomfortable with legal proceedings, and gradually sold their debt to distressed hedge funds, which had both legal expertise and longer-time horizons.  “Very few EM funds are overweight Argentina, many own no Argentine paper at all; the firms which are supposed to own Argentina just don’t own it,” he observed.  He seconded Ferro’s assessment that a solution could be found if the parties were put together in a room.

Alvarez de la Viesca asked for thoughts on the evolving litigation in the US courts.  Ferro believed that a technical default would not occur, as he did not see it in any actor’s interest to force a technical default.  More problematic, in his opinion, would be how financial middlemen would be able to obey Judge Griesa’s orders.  If the government was able to settle with “number one enemy Repsol,” in his assessment, it would be possible for the administration to reach a settlement with hold-out creditors as well.

Pablo Santiago of Banco Mariva delivered recommendations for Argentine investors. Santiago spoke positively on Buenos Aires provincial bonds due next year, which he stated avoided the political risk of other debt instruments.

The panel was followed by a presentation by Daniel Gonzalez, CFO for the Argentine oil company YPF.  Gonzalez delivered an upbeat presentation of the company’s future, following several years of a decline in production.  YPF planned to be more active on the international debt markets in order to finance its investment goals, he stated.

Following Gonzalez’s presentation, EMTA members were invited to a cocktail hour, a dinner and a night-time view of the city’s dramatic 1.7 mile horse-racing track.