By Rob Cox

Jan. 26, 2016

Two big deals dominated the agenda in Davos, Switzerland, last week: Argentina’s negotiations with holdout creditors and Saudi Arabia’s potential sale of a piece of its national energy leviathan, Saudi Aramco.

One would open up a robust democracy to global markets after years of feckless governance and isolation. The other would help a repressive regime retain its grip. That both would arguably leave the world better off underlines its fragile state.

The plutocrats assembled in Davos at the World Economic Forum, which concluded on Saturday, spent most of their time reassuring each other that sliding stock markets represent no threat to their prosperity similar to the 2008 financial crisis. When their discussions ventured further afield – and beyond the surging poll numbers of Donald J. Trump’s presidential bid — Argentina and Saudi Arabia were front and center. They represent starkly divergent developments that, while not suggestive of crisis at the doorstep, showcase the tenuous nature of global stability.

Argentina’s return to the economic mainstream is the happier of the two. The newly elected president, Mauricio Macri, hopes to reach a settlement with creditors led by Elliott Management who went unpaid when his predecessors defaulted. Though Mr. Macri said he had not met with Elliott’s leader, Paul Singer, his delegation of cabinet members, including his finance minister and a former JPMorgan banker, Alfonso Prat-Gay, and even the leader of the opposition party, charmed the pants off the international bankers and world leaders in attendance.

In addition, the Argentines used their Swiss visit to meet with bank chief executives to lay the groundwork for expanding the country’s dollar reserves. By lending money to the central bank in return for as-yet-to-be-determined collateral – via a so-called repo operation – financial institutions can help bring Argentina back to the markets. That presumably entails support from the International Monetary Fund, with whom Mr. Macri and his entourage also tangoed in Davos.

As Mr. Macri made a point of noting, that will benefit everyone. In an interview with Reuters, he boasted that Argentina’s agricultural industry could feed 600 million people – but only if it could reach them.

“For that we need infrastructure. We need roads, ports — for that we need financing,” he said. “We are near,” he continued, to having “the worst logistics in Latin America. That’s a great opportunity also for companies and investors.”

Mr. Macri’s performance should increase external pressure on the hedge fund holdouts headed by Elliott to accept any offer that looks objectively reasonable. Mr. Singer has a strong track record of holding fast to his legal convictions, but does he really want to be known as the man who deprived the world’s hunger of prime Argentine beef?

Contrast Argentina with the other big deal floating around Davos: a stock offering from the national petroleum company of the kingdom of Saudi Arabia. Bankers on Wall Street and in the City of London were feverishly preparing underwriting proposals last week for the share sale, which would probably be limited to a downstream division of Aramco to avoid shining the full spotlight of transparency on the parent’s books and vast oil reserves.

Top executives from banks working on the pitches professed little alacrity about the deal, for reasons that are both selfish and moral. On the first point, though an initial public offering of Aramco could be the biggest equity deal in history, the fees will be negligible. The last big Saudi Arabian I.P.O., a $6 billion offering for National Commercial Bank in November 2014, paid underwriting commissions of below 0.1 percent. By contrast, the Chinese e-commerce group Alibaba paid 12 times as much to the banks that took it public in a $25 billion deal two years ago.

That might be tolerable to the banks if the deal were of a more philosophically palatable character, along the lines of, say, restoring Argentina’s access to credit. Saudi Arabia last year summarily executed more than 150 people, the most in two decades, according to Amnesty International. Notwithstanding Deputy Crown Prince Mohammad bin Salman’s talk of transparency, the offering has to be seen as part of the Al Saud dynasty’s coping mechanism for sliding oil prices and the damage this is doing to the finances of the kingdom.

Sustained low oil prices, partly the result of the kingdom’s hopes to squeeze out higher-cost producers from Iran to Calgary and from North Dakota to Brazil, threaten the social spending that is critical to keeping social unrest at bay. As my colleague Andy Critchlow estimates, Riyadh may need to sell half a trillion dollars of assets to cover budget shortfalls if oil hits $20 a barrel.

In an Aramco I.P.O., there’s no money to be made and no pathway to moral redemption. So why participate? Though the idea of financing a regime that kicked off this year with 47 beheadings is troubling, the alternative would be worse for global stability: a chaotic, Libya-style breakdown.

It’s naïve to think that financiers alone have the power to prevent Saudi Arabia from spreading geopolitical anxiety or to turn Argentina into a trustworthy, developed market. But given the delicate state of the global economy, World Economic Forum bankers should give it their best shot.


By Taos Turner

27 January 2016

Mariano Federici charged with bolstering fight against money laundering, drug trafficking

BUENOS AIRES—President Mauricio Macri on Tuesday appointed a former International Monetary Fund official to head Argentina’s financial crimes agency, in a move that aims to bolster the country’s contribution to the global fight against money laundering and drug trafficking and to improve the agency’s relations with its counterpart in the U.S.

Mariano Federici, the agency’s new head, said a priority for the agency is to restore full ties with the U.S. Treasury Department, which has its own financial crimes agency, the Financial Crimes Enforcement Network, or FinCEN. The U.S. stopped providing Argentina with financial intelligence last year, Argentine officials said, amid concerns that authorities in the government of then President Cristina Kirchner had used confidential information from FinCEN for political purposes in a court case here.

In recent years, law-enforcement officials here say, Argentina has become a destination for narco-trafficking organizations that transport cocaine and other drugs into the country. Authorities say the groups are setting up drug-processing labs and fighting for control of the trade, leading to a spike in homicides in some cities.

“We are going to put a very strong emphasis on fighting drug trafficking, which is a priority for Macri,” Mr. Federici said in an interview last week. “We think this is one of the most serious threats facing the country.”

Mr. Federici said the agency will also focus heavily on working with local financial institutions, including banks and casinos, to combat international terrorism. “Our contribution to the global fight against terrorism is often underestimated, even though we suffered two terrorist attacks in Argentina,” Mr. Federici said, referring to car bombings that targeted the Israeli Embassy and a Jewish community center here in the 1990s.

Argentina’s financial crimes agency is one of about 150 financial intelligence units around the world, which are used to detect financial crimes, including money laundering and the financing of terror groups. FIUs, among them Treasury’s FinCEN, share confidential information to track the illegal use of financial institutions.

Mr. Federici was a top anti-money-laundering official at the IMF and worked with Latin American countries to combat it. That is a priority for Argentina, where officials here say drug-trafficking gangs from Mexico and Colombia have been moving money.

During Mrs. Kirchner’s tenure, the U.S. stopped sending information to Argentina from FinCEN in 2009 and again in 2015 amid concerns that confidential information was being used for political purposes, Argentine officials said. FinCEN and U.S. Treasury representatives declined to comment on the breakdown in relations.

Last year, the U.S. Justice Department rejected a request by Argentina to let it use information from FinCEN in a court case against the family of a prominent prosecutor. Alberto Nisman, the prosecutor, had accused Mrs. Kirchner of trying to sabotage his investigation into the 1994 terrorist attack on a Jewish community center in Buenos Aries that left 85 people dead.

In September, Argentina’s ambassador to the U.S., Cecilia Nahón, said in a letter to the State Department that Argentina was frustrated by U.S. delays in replying to requests by the judge for help in obtaining additional information that could be used as evidence in the case against Mr. Nisman’s family.

“All we see are unjustified delays and unnecessary bureaucratic delays, which do not allow for the judicial investigations to move forward,” said the letter, which was published on Argentina’s presidential news site.

Mr. Nisman was found dead with a bullet wound to his head, on January 18, 2015, a day before he was scheduled to testify about his allegations in Congress. A federal judge and an appellate court declined to investigate Mr. Nisman’s accusations, saying there was no evidence any crime had been committed relating to his investigation.

José Sbattella, who ran Argentina’s financial crimes agency until last month, said he was unable to prevent the federal judge from using classified intelligence material from FinCEN in the case against Mr. Nisman and his family. The judge’s actions, he said, violated Argentina’s agreement with the U.S. to keep information from FinCEN confidential. He said the judge acted on his own and that Argentina’s FIU had no legal authority to stop him. He denied that the agency mishandled any information last year.

An appellate court eventually removed the judge from the case, citing concerns about his impartiality. Mr. Nisman’s relatives are trying to get the case thrown out. The judge couldn’t be reached to comment.

Mr. Sbattella acknowledges that Argentina’s FIU leaked classified material from FinCEN to a pro-government newspaper here in 2009, a year before he was appointed to the agency. He says he spent much of his tenure trying to improve relations with FinCEN.

“All that time we kept sending information to FinCEN,” Mr. Sbattella said Tuesday.

Under Mr. Macri, Argentina has moved to repair relations with Washington, Europe and global financial institutions, among them the International Monetary Fund.

A U.S. Treasury Department spokesperson said Argentina “has an important role to play in the global fight against money laundering and terrorist financing,” adding that “Treasury is encouraged by recent efforts to strengthen Argentina’s FIU, and looks forward to positive collaboration with Argentina on these issues.”


By Benedict Mander

January 26, 2016

E7PY7K Overview of white homes in River Plata and Belgrano suburb with Stadium in Buenos Aires

Population 13m (Greater metropolitan area)

Corporation tax 35%

Setting up 3-6 months (urgent filings under 15 days)

Buenos Aires is home to a rich blend of peoples and cultures, whose origins range from Spain, Italy and eastern Europe to China, Africa and the US. Recently, it has become a magnet for people from many South American neighbours.

The case for: The diverse and creative population has benefited from an excellent public education system, as well as some 40 universities (mostly private) and more than 30 research centres.

Last year, the city’s efforts to foster a start-up cluster won the Cities Challenge of the Global Entrepreneurship Congress, organised by the Kauffman Foundation. The market-friendly government led by the centre-right President Mauricio Macri has grand plans to make Argentina a “normal” country again.

Buenos Aires also boasts bookshops and theatres to rival other cultural capitals of the world. With fine weather and pleasing architecture, this “Paris of the South” is a great place to live.

The case against: Plagued by periodic financial and political crises, Argentina could win the prize for the world’s worst-performing economy, having lost its status as one of the richest countries a century ago. It ranks as one of the region’s worst countries in the World Bank’s Doing Business report. Paradoxically, however, double and sometimes triple-digit inflation and all manner of economic controls such as the recently removed strict capital controls has bred a financially savvy population.

Support for start-ups: Venture capital is thin on the ground and many start-ups seek funding from overseas, although that is starting to change. Kaszek Ventures has raised more than $200m since it was founded in 2011, and investor optimism over economic reform is expected to create opportunities. More accelerators such as NXTP Labs, set up in 2011, and publicly backed schemes, such as an entrepreneurship academy with free live and online courses launched by the city of Buenos Aires, are emerging. Endeavor, an international non-profit organisation that supports entrepreneurs operates here.

Local heroes: Buenos Aires has fostered some of the region’s most successful tech start-ups. MercadoLibre, Latin America’s answer to eBay, is the region’s only internet company listed on Nasdaq. Globant, which develops software for clients such as Google and Coca-Cola, became the region’s first software company to float on the New York Stock Exchange in 2014. Despegar , the online travel company, may soon follow suit.

What the locals say: “The market size here may be relatively small, but entrepreneurs have a much more global mindset . . . In Argentina, from the get-go entrepreneurs are pushed to think beyond our borders and aspire to be part of the region,” says Gabriela Macagni, executive director of Endeavor.

Martín Migoya, Globant’s chief executive and co-founder, says being in the same timezone as the huge market in North America, where most of its clients are, is a huge plus.


By Carolina Millan

January 26, 2016

* Country’s bonds sink 3.9%, twice emerging-market average

* Argentina’s benchmark notes hit nine-year high last month

Argentina managed to sidestep an emerging-market bond rout late last year on optimism newly elected President Mauricio Macri will end the nation’s isolation. But now, the deepening selloff roiling global markets is proving to be too much for investors to ignore.

The country’s dollar-denominated notes have lost 3.9 percent this month, more than three times the average in emerging markets, data compiled by JPMorgan Chase & Co. show. Its benchmark bonds due in 2033 have slid 4.1 percent from a nine-year high reached Dec. 30 and are now trading at the lowest price since Macri was elected Nov. 22.

While Macri has followed through on promises to dismantle currency controls and start negotiations with disgruntled creditors since taking office last month, the turmoil in global markets fueled by plunging commodity prices upended a plan to sell local notes and fueled the decline in overseas notes as investors dumped risky assets. Argentina’s foreign debt is rated Caa2 by Moody’s Investors Service, eight levels below investment grade. Standard & Poor’s has a SD, or selective default, grade on the debt.

“There’s been a strong risk-off in emerging markets, and even if Argentina has been separate from other global trends, it’s not immune,” said Joaquin Almeyra, a fixed-income trader at Bulltick LLC. “You’ve seen a lot of pain across Latin America and this was a question of contagion.”


By Nathan Gill

January 27, 2016

* Regional leaders meet in Quito to discuss integration agenda

* Spat between Venezuela, Argentina escalates as Macri cancels

Before he died, Venezuela’s late president, Hugo Chavez, had a dream to unite Latin America and the Caribbean against the dark forces of the U.S. empire. It’s not working out like he planned.

As presidents and prime ministers from the regional group CELAC meet Wednesday in an attempt to knit closer ties, President Nicolas Maduro, Chavez’s hand-picked successor, finds himself fending off attacks from the nation’s former ally, Argentina.

“Why does a country have to put up with the whole onslaught of right-wing governments,” Maduro said Saturday after Argentina’s newly-elected president, Mauricio Macri, criticized his government’s human-rights record. “I’m going to the summit of Latin America and the Caribbean nations in Quito with everything. No one is going to shut me up.”

While it’s unlikely anyone will shut Maduro up, his feud with Macri highlights political divisions across the region, where governments from Brazil’s President Dilma Rousseff to Ecuador’s Rafael Correa are struggling to fend off allegations of corruption and economic mismanagement after a collapse in global commodity prices plunged their economies into recession. The bickering can only weaken CELAC, said Cynthia Arnson, director of the Latin America program at the Woodrow Wilson International Center for Scholars in Washington.

“Venezuela historically has wanted to push confrontation with the U.S. and within Latin America,” Arnson said Tuesday in a telephone interview. “If CELAC is going to be merely a forum for ideological confrontation, it will quickly lose relevance.”


CELAC, the acronym for the Community of Latin American and Caribbean States, was formed in 2011 at a summit in Caracas to help integrate the region and provide a forum to resolve disputes without the intervention of the U.S. and Canada. At the time, Chavez predicted the group would replace the Organization of American States, which includes the North American countries.

For now, the OAS is holding its ground. Whereas 34 of 35 heads of state attended the last meeting of the OAS in Panama last year, 27 of 33 are confirmed for Wednesday’s meeting in Quito. Among those missing are the heads of state of Cuba, Uruguay, El Salvador and Argentina.

Macri, who defeated the official candidate of former President Cristina Fernandez de Kirchner’s political party in December, called for the release of prisoners in Venezuela who human rights groups say are being held for political reasons. His press office said Sunday that doctors had advised him not to travel to the summit because of a rib injury.

The other leaders from the member states will discuss poverty reduction and inequality, climate change, infrastructure financing and immigration, among other issues, according to Ecuador’s Foreign Ministry.

“The real question for CELAC is what kind of organization it proposes to be,” Arnson said. “It’s important that there be regional institutions, but as yet there does not seem to be a clear agenda.”


By Richard Lough

Jan 26, 2016

Argentina’s labor ministry ordered striking aviation employees to resume wage talks with LATAM Airlines and return to work, a ministry official said on Tuesday, after their walkout grounded four flights out of Buenos Aires’ main airport.

The workers, who belong to Argentina’s Union of Commercial Airline Senior and Professional Personnel, went on strike at dawn at Ezeiza International Airport over stalled pay negotiations.

An online departure board on the website of airport operator Aeropuertos Argentina 2000 showed delays of four flights from Buenos Aires to Chile, Peru and Brazil.

Local TV showed snaking queues in the Ezeiza check-in hall, and passengers were advised to contact the company.

Labor relations are prickly in Argentina, where trade unions routinely butt heads with private companies and the government over the scale of pay increases.

A spokeswoman confirmed the mandatory negotiations but said she had no further details.

The strike is a sign of what is to come for President Mauricio Macri ahead of wage talks with the country’s most powerful unions in the coming weeks. Macri oversaw the lifting of capital controls that led to a sharp devaluation of the peso .

LATAM operates TAM in Brazil and LAN Airlines in Chile, Argentina, Ecuador, Peru and Colombia.

In a separate dispute with the Argentine Federation of Aeronautic Personnel, or FAPA, the government earlier this month ordered salary talks between pilots and LAN Argentina.

Union officials said both pay rows would fester if the company did not offer a bigger salary increase.

“At the end of the month the compulsory talks between LAN Argentina and the FAPA union will end, and we’re likely to have another conflict because the pay offer the company has made is very low,” Sergio Mercau, a spokesman for an affiliated pilots union, told TV channel C5N.


By Charles Newbery

26 Jan 2016

Argentina is considering raising natural gas prices to boost production so that producers can sustain employment levels even as low global oil prices raise the threat of layoffs, a provincial governor said Tuesday.

Omar Gutierrez, governor of the gas-rich Neuquen province, said he is working on the plan for higher prices with Guillermo Pereyra, a national senator who also runs the Union of Private Oil and Gas Workers in the southwestern provinces of La Pampa, Neuquen and Rio Negro.

Gutierrez said they have taken the proposal to national Energy Minister Juan Jose Aranguren, and will meet with him again.

“Neuquen has a very significant opportunity to provide the larger gas supplies that the country needs,” Gutierrez said in a statement. “We are working to achieve a higher average price.”

The price for gas supplies from new developments, mostly of shale and tight gas production, is now at $7.50/MMBtu, while it runs between $2.70/MMBtu and $3.00/MMBtu for supplies from older, conventional gas wells.

Gutierrez said the idea is to increase the price to an average $5.80/MMBtu for supplies from older wells.

This increase would come in response to a national plan gradually to eliminate subsidies on electricity and gas rates. The move will lead to higher rates and wellhead prices from February, reducing the strain on public finances and providing more incentives to companies to ramp up exploration and production.

The higher price “will make new investments possible,” the governor said.

Another benefit is that higher gas prices will help mitigate the impact of lower oil prices, he added.

At the start of the year, the national government reached an agreement with oil producers to cut domestic crude prices by 10% to $54.90/b for heavier crudes produced in the south and to $67.50/b for a light crude produced in Neuquen.

While domestic crude prices are still higher than the around $30/b international price, the 10% drop has put at risk investments in oil exploration and production, in particular for crude for export. 532,000 b/d crude production.

Neuquen, by comparison, produces 20% of Argentina’s 532,000 b/d crude production and 47% of its 120 million cu m/d of gas, according to the Argentine Oil and Gas Institute (IAPG) industry group.

There is room to increase gas production because Argentina is running a deficit of 8% in gas supplies that peaks at 50% in the colder months of May to September. This has brought seasonal shortages that are partially plugged by importing an average of 30 million cu m/d of supplies from Bolivia by pipeline and from the global market via two floating regasification terminals.

Neuquen holds huge potential to increase gas output from shale and tight plays, including Vaca Muerta, which is starting to be brought into production by YPF, Chevron, Shell, ExxonMobil, Total and other companies.


26 January 2016

The ‘honeymoon’ period of Argentina’s President Mauricio Macri will end when union salary negotiations begin in March, says former central bank president Martin Redrado.

Macri came to power in December and has moved quickly to change the previous economic model of heavy state intervention and strict controls, including doing away with FX controls, cutting export taxes and starting talks with holdout creditors.

The outcome of the salary negotiations could have an impact on several key issues for the government, including lowering inflation, reducing the fiscal deficit and maintaining a stable FX rate, Redrado told a Scotiabank seminar in the Chilean capital Santiago. These difficult negotiations with strong unions will also show how capable Marci and his team really are in governing a country such as Argentina, Redrado added.

All the important unions are expected to request salary increases of at least 30%, and such hikes would make it very difficult to reach this year’s inflation target, Redrado said.

Finance minister Alfonso Prat-Gay announced earlier this month an inflation-targeting plan, with the goal of gradually bringing down price increases to 5% in 2019, from 20-25% this year.

Meanwhile, the legislative period begins in March and Macri will have to negotiate reforms with congress, where he does not have a majority. The good news for Macri, said Redrado, is that the Peronist movement is fragmented, and this could open up bipartisan deal-making opportunities.


The Macri government is off to a very good start but the future challenges are “enormous” since the previous government left the country’s economic indicators in a state of despair, said Redrado.

A GDP contraction and an annual inflation rate of around 30% is the most likely scenario for this year, but 2017 could see 3-4% GDP growth and 20% annual inflation if the government is able to advance with its ambitious reform agenda, Redrado said.

The Harvard-trained economist believes Argentina will reach an agreement with the holdouts this year, which would allow the country to return to the international markets again and reap the benefits of lower-cost financing. The most important thing in this complex issue is that Argentina’s attitude towards the holdouts – referred to by former president Cristina Fernández de Kirchner as “vulture funds” – has completely changed under Macri, he said.

Redrado was head of Argentina’s monetary authority during 2004-10 and he is the founder of economic think tank Fundación Capital. Fernández de Kirchner dismissed Redrado from his post in early 2010 due to his opposition to the use of central bank reserves to help finance the a growing fiscal deficit.


26 January 2016

Although Argentina’s government-fixed domestic oil prices have sustained E&P investment through the current global downturn, producers in Chubut province have been unable to reap the full benefits.

That’s because up to 40% of output from the province is exported, according to a report from state news service Télam.

Prices for Argentina’s Medanito and Escalante benchmark crudes averaged US$77/b and US$63/b, respectively, during 2015, the report said, citing BP-controlled Pan American Energy (PAE) and Argentine firm Tecpetrol as Chubut’s main oil exporters.

By comparison, WTI crude averaged US$48.67/b, according to the US Energy Information Administration.

The Medanito light crude blend is produced in the Neuquén basin, while the medium Escalante blend comes from the Golfo San Jorge basin (pictured), which straddles provinces Chubut and Santa Cruz.

Due to a lack of refining capacity, there is less internal demand for the heavier Escalante, the report said, forcing Chubut producers to export it at global prices, which have hit their lowest point in over a decade.

Citing production costs of US$35/b, and with WTI futures trading at around US$30/b as of Tuesday, Chubut oil exporters have asked for support from the government of President Mauricio Macri to sustain production, the report said.

Meanwhile, Macri’s energy ministry has set the internal market prices for Medanito and Escalante at US$63.50/b and US$54.90/b as of January.

Analysts at Raymond James this week projected that Macri will probably keep prices stable for the rest of 2016, but that the medium-term goal is to bring local prices in line with global benchmarks.


26 January 2016

The governor of Argentina’s Neuquén province, Omar Gutiérrez, called on the national government to maintain and expand subsidies for natural gas producers.

Argentina guarantees a wellhead price of US$7.50/MMBtu for new natural gas production, under a measure implemented in 2012 to stimulate investment and reverse declining output.

By comparison, according to a report in state-run newspaper Neuquén Informa, the domestic market price for natural gas currently fluctuates between US$2.70 and US$3.00/MMBtu, with the federal government absorbing the difference.

The government also subsidizes end-use of natural gas for consumers, creating a situation widely cited by experts as unsustainable, and which energy secretary Juan José Aranguren has pledged to address through gradual subsidy reform.

But as subsidies to gas consumers are phased out, federal assistance to gas producers should be strengthened, Gutiérrez argued, according to the report.

The governor cited a desire, on the part of Argentina’s gas-producing provinces and labor unions, to maintain the US$7.50/MMBtu price for “new gas” and to fix an average price of US$5.80/MMBtu for “old gas.”

Gutiérrez pointed to the government’s artificially high domestic oil price as an essential tool that should be replicated for natural gas.

Argentina’s new President Mauricio Macri and minister Aranguren face a formidable challenge as they aim to return the local energy sector to a more market-based, international model while keeping the hydrocarbon-producing provinces – which largely voted against Macri in the November presidential election – happy.

The four important groups in Neuquén’s oil and gas sector, Gutiérrez said, are the private operators; the workers’ union; the provincial government, which awards and renews E&P concessions; and the national government, which sets pricing policy.

Neuquén province is home to the Vaca Muerta shale deposit, where firms including national oil company YPF, Chevron, Dow Chemical and ExxonMobil continue to ramp up investment in unconventional E&P.


26 January 2016

NEW YORK, Jan 26 (IFR) – Pampa Energia’s shareholders have approved a US$500m debt program, raising speculation that the Argentine utility is accumulating a war chest for an acquisition of Petrobras assets.

Pampa CEO Marcelo Mindlin has expressed an interest in buying the Brazilian oil company’s Argentine assets.

And local press reported the company had been analyzing an offer for a stake of slightly more than 60% for US$1bn-US$1.3bn.

“They were bidding for Petrobras assets, so you can assume there is an acquisition finance behind that (debt shelf) and possibly a bond take-out,” said a DCM banker focused on Argentina.

Analysts at Raymond James wrote last month that acquiring an up to 67% stake in Petrobras Argentina could be financed through debt and the sale of assets, given the credit’s low leverage.

As of the third quarter last year, the company had a net debt to Ebitda ratio of just 0.1 times, which would jump to around 1.3 times if it bought 67% of Petrobras in the US$1bn-US$1.3bn range, the analysts said.

Pampa is the country’s largest electricity company and is expected to benefit from the eventual lifting of utility tariffs as newly installed President Mauricio Macri looks to establish more market-friendly policies.

Changes to the existing tariff structure are expected to be announced as soon as February, as part of the government’s effort to cut the growing fiscal deficit.

“We favor Pampa as it offers exposure to the generation sector, which we believe will be the best-performing segment in the industry, while benefiting from the improvement in profitability in the other businesses (transmission and distribution),” said Raymond James.

The company’s early-stage backers cashed in on those prospects late last year through an all-secondary US$74.6m follow-on offering.

Bank of America Merrill Lynch was sole bookrunner.

Yet while market optimism about policy changes in Argentina is high, sliding crude prices and broader volatility is likely to up the cost of any bond take-out.

“It is still Argentina and it is still high-yield,” the DCM banker said.

“The US high-yield market is not healthy at the moment, and I don’t think the tariff issue alone will drive values.”

Possible comps for Pampa Energia include other Argentine utilities such as Transener, TGS and Edenor.

According to Thomson Reuters data, those companies have 9.75% 2021s, 9.625% 2020s and 9.75% 2022s trading at mid-market yields of around 11.20%, 9% and 9.8%, respectively.


26 January 2016

BUENOS AIRES, Jan 26 (Reuters) – Drought has caused irrecoverable corn crop losses in some areas of Argentina despite the El Niño weather phenomenon which usually triggers heavy rains in South America, an analyst at the country’s main grains exchange said.

Argentina is the fourth largest exporter worldwide of the grain and farmers raced to plant more in recent weeks after the new, business-friendly government eliminated export taxes and quotas for corn.

However, a lack of rain and high temperatures in the north east of the province of Buenos Aires, the main agriculture district of the country, is threatening the corn harvest.

“This zone is burning up,” said Sofia Corina, an analyst at the Rosario exchange. “I’ve received reports of lost plots of corn and corn that has lost 50 percent of its yield.”

“This is completely unheard-of for a year of El Niño,” she added.

El Niño is a warming of ocean surface temperatures in the eastern and central Pacific that occurs every few years, triggering heavy rains and floods in South America and scorching weather in Asia and as far away as east Africa.

Two weeks ago, the Rosario exchange estimated the corn harvest for 2015/16 would be 23.8 million tonnes, up from 20.2 million tonnes in the previous season, due to a larger planting area and higher yields.

Corina said the area hit by drought represented 8 percent of the main agricultural area of the country, which is also a top global exporter of soy and wheat.

The expert said the lack of water also impacted soy but given the oilseed was not in its key period of growth, there was still time to avoid losses of the crop.

“If it rains, it can still be saved and manage to maintain its yields,” she said.

Argentina’s National Meteorological Office does not expect rain for that region in its weather forecast that predicts up to Friday. The temperature there is expected to reach up to 33 degrees Celsius (91.4 degrees Fahrenheit).


By Dimitra DeFotis

January 26, 2016

Tudor Pickering upgraded Argentina oil-and-gas exploration and production company YPF (YPF) and its price target implies U.S.-traded shares could have 50% upside.

Shares in the state-run energy company jumped nearly 5% Tuesday to a recent $14.94. Shares of YPF have tumbled 38% over the past 12 months, while shares of Petrobas Argentina (PZE) are up 20% and shares of Brazil’s state-run Petroleo Brasileiro or Petrobras (PBR) are down nearly 60%. The upgrade, to Buy from Hold, calls YPF a relatively defensive name in Latin America “with large resource potential to unlock.” From the upgrade report:

“We are upgrading YPF to Buy from Hold with an unchanged $23 price target based on … Argentine [oil] pricing of ~$65 per barrel, which implies 5x 2016 enterprise value/DACF. We see YPF as advantaged in this market given fixed pricing, the recent devaluation of the peso bringing down costs making the Vaca Muerta shale play (more than 50,000 barrels of oil equivalent per day of gross production) much more interesting. YPF’s balance sheet is not so much of a concern to us given we expect that YPF’s ability to attract capital to the Vaca Muerta will be enhanced with a more business friendly government, encouraging recent type curve data and lower costs improving economics.”

The Wall Street Journal reported earlier this month that YPF and American Energy Partners, headed by the founder and former CEO of Chesapeake Energy (CHK), Aubrey McClendon, agreed to jointly explore and develop unconventional oil-and-gas projects in Argentina. The U.S. company is expected to fund, or find private-equity backing, for most of the $500 million to be invested in Vaca Muerta, WSJ reported:

“The deal, the latest in a series of international joint ventures by the Argentine state-run firm, underscores growing interest in Argentina’s Vaca Muerta–or “dead cow”–shale formation, in the Patagonian Province of Neuquén, which has turned Argentina into the world’s top shale producer outside of North America. “

Chesapeake suspended preferred dividends last week, and Chesapeake’s debt was downgraded Tuesday. See our posts on Why Petrobras Argentina & YPF Zig When Oil Prices Zag and more on new Argentine President Mauricio Macri’s $500 Billion Shale Oil Investment.


By Simeon Tegel

January 26, 2016

In Argentina, one of the world’s great ranching nations, eating steak every day is a way of life. Is it on the brink of importing beef?

The news is just the latest chapter in the country’s long-running drama of economic turmoil. Many citizens are hoping the new conservative government of President Mauricio Macri will finally end both the drama and turmoil.

But beef? It’s considered practically a human right in a land that lives for Sunday afternoon asados — or cookouts. The news that it may be imported comes amid forecasts that Argentines will eat less beef this year, a per capita average of 123 pounds compared to 2015’s 130 pounds, as domestic consumption is hit by a complicated mix of inflation and supply chain turbulence.

The previous presidencies of the late Nestor Kirchner and then his wife, Cristina Fernandez de Kirchner, saw frequent tensions between the government and Argentine ranchers.

The couple’s leftist policies led them to slap a 15 percent export tax on beef and issue a permit system for foreign sales while forcing ranchers to hit quotas for sales to local markets — at lower prices than on international markets.

The plan was aimed at ensuring that even poor Argentines could afford beef in a nation where it is regarded as a basic staple to be eaten morning, noon and night.


Meat is grilled at the open air Mataderos Fair in Buenos Aires May 25, 2014. The event was staged as part of the 204th anniversary commemorations of the May Revolution.

But critics called it populist and warned of the harmful effects of alleged market interference, while farmers developed an aversion to selling their wares nationally.

Argentina’s beef herd remains one of the largest in the world at 51 million head of cattle, with production relatively stable. The problem is not a shortage of cattle in the South American nation.

Instead it is inflation, and what the government fears is speculation by some ranchers, seeing domestic beef prices rise by 13 percent just in December.

Vice President Gabriela Michetti warned: “We are seriously considering opening up imports of beef because it is one of the [food items] that most took off [in price]. There were negotiations with the sector but the problem continues. The government is very worried.”

She added that the beef industry was not fulfilling promises to keep prices down and that the government was also determined to avoid a “neoliberal” market readjustment, that would see prices immediately floated, leaving many poor consumers unable to afford steak.

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