Chile is on the brink of losing its hard-won reputation as the safest bet in Latin America following the biggest social upheaval in a generation. One month into a wave of mass protests Chile’s credit-default swaps are near those of the region’s other most stable countries, Bloomberg News reported. The gap between the spread on its five-year CDS and Peru’s has narrowed 21 basis points to two basis points. The gap with Panama has disappeared over the same period, with the Central American nation now 0.6 basis point below Chile.
Investors are souring on how much they can recoup from a potential Argentine default as President-elect Alberto Fernandez procrastinates on plans to save his nation from financial ruin, Bloomberg News reported. Argentine dollar bonds due in 2028 now fetch as little as to 36 cents on the dollar -- a drop of about 20 cents since the immediate aftermath of the leftist’s surprise primary victory in August. A mountain of debt, staggeringly high inflation and little sign of who Fernandez will pick for his cabinet -- and which policies they will implement -- have bondholders begging for clarity.
Argentina must repay $5 billion by the end of 2019. It doesn’t have much to work with. While the country’s foreign reserves total a still somewhat robust $43 billion, that figure shrinks markedly once untouchable assets such as dollar deposits of everyday Argentines and a credit line from China are stripped out, Bloomberg News reported. Analysts surveyed by Bloomberg News estimate that the amount that policy makers can actually freely spend is no more than $12.5 billion. One of the analysts, Siobhan Morden of Amherst Pierpont Securities, puts the figure at as little as $6.5 billion.
Investors in frontier-market bonds are on course to get their best returns in seven years. It looks like it’ll be a lot tougher in 2020, Bloomberg News reported. Some of the biggest money managers are already becoming more selective. BNP Paribas Asset Management, which oversees almost $500 billion in assets, is sticking to countries with sound fiscal management such as Ivory Coast, or those with investment-grade ratings like Kazakhstan, Uruguay and Morocco. Aberdeen Standard Investments sees opportunities to get above-market returns by buying the bonds of Sri Lanka, Ecuador and Ghana.
Despite allegations to the contrary, “reprofiling” is not an Argentine euphemism for debt restructuring. It is a distinct liability management exercise that is optimal, from a welfare standpoint, for certain well-defined sovereign debt crises. In our (preliminary) opinion, Argentina’s situation meets the required criteria for a reprofiling that would defer its maturities for a relatively short period, while not reducing either the face value of its obligations to private creditors or their contractual coupons, the Financial Times reported in a commentary.
Argentine economists predicted a worsening recession and a slightly higher inflation forecast of just under 56% in a central bank monthly poll of analysts released on Monday, the first since the victory of leftist Peronist candidate Alberto Fernandez in the country’s presidential election, Reuters reported. Inflation was seen at 55.6% for the year, up from 54.9% in the same central bank poll last month. It will ease to 42.9% by 2020, slightly higher than the previous prediction, according to the survey of 45 analysts.
As Argentina careens toward a default, investors are paying a premium for bonds that they think will give them more negotiating power, Bloomberg News reported. They’re delving deep into legal rules governing the securities, searching for language covering collective action clauses that come into play when borrowers want to change contract terms, as in a restructuring. Notes that require a higher percentage of investors to sign off on any deal often trade at a premium of about 25% over those with a lower threshold. Bondholders have good reason to think the issue will soon be in play.
Brazil’s largest airline, Gol Linhas Aereas Inteligentes, on Thursday reported a 242 million reais ($60.69 million) third-quarter loss, hit by problems affecting its Boeing 737 planes, Reuters reported. Gol flies Boeing 737 planes exclusively, a strategy which can help to reduce costs. But this year it has exposed the company to Boeing’s woes, including the worldwide grounding of the Boeing 737 MAX, following two deadly crashes. The carrier says it expects its seven MAX planes will receive regulatory approval to resume flights in December, based on the guidance it has received from Boeing.
Argentina’s central bank is setting a price floor under the volatile peso in hopes to avoid a sharp plunge in the currency after an opposition-won presidential election last Sunday shifted the country firmly back to the left, Reuters reported. The peso edged up on Thursday to 59.68 per dollar, with the central bank offering U.S. currency in the exchange market at a fixed 59.99 pesos per greenback, effectively putting a floor on the trade.
A group of bondholders is turning to one of the most recognized names in Argentine debt underwriting for guidance as it gears up for restructuring talks with President-elect Alberto Fernandez’s government over some $50 billion in debt, Bloomberg News reported. Marcelo Delmar, the former head of Latin American debt capital markets at BNP Paribas SA, has been offering advice in recent calls with some of Argentina’s largest creditors, according to people familiar with the matter.