We expect local and external demand for the Boden ’15. The bond has sponsorship from local investors who use it as a way of dollarizing portfolios. Unlike the short end, the belly of the curve runs the risk of additional supply. The public pension fund appears to have been selling Bonar ’17s and the government recently issued 2018 and 2019 dollar bonds to the ANSES, which could start selling them to the market. The long end remains illiquid and has little support from either foreign or local investors. In our view, the continued external risks and the deterioration of prospects for the economy will keep investors reluctant to take duration risk and focused on short-dated bonds.
For leveraged investors, we recommend GDP warrants. We estimate that, barring a default, USD and EUR warrants will pay out approximately 50% of the upfront cost in December of this year (almost 70% for ARS warrants). Next year’s payment is uncertain, as economic growth could fall below the 3.26% threshold. However, we still assign a low probability to that happening.
The latest monthly GDP proxy data supports our view that growth will surpass the 3.26% threshold for a warrant payment in 2013. Our economists believe that, based on February’s monthly GDP proxy, which came out at 5.2% yoy, the official data will likely show Q1 real GDP growth of at least 5% yoy. If this were the case, then for the whole year GDP growth rate to fall below the 3.26% threshold, GDP growth would have to average 2.6% yoy in the next three quarters. While actual growth may well fall below those levels, we think the government will be highly unlikely to admit to such deceleration. In our view, the political price for acknowledging a sharp economic downturn is incurred immediately, while the budgetary savings of avoiding about $4bn payment on the warrant will be realized only in December 2013. Still, we believe is important to monitor high frequency data that is likely to result in continuing volatility in Argentine assets, particularly GDP warrants (for example, weak consumer confidence and shopping center sales recently released confirm this view).
EUR warrants look the most attractive. As shown in Exhibit 2, EUR-denominated warrants presently offer a higher discount to theoretical value than other currency-denominated warrants. Additionally, the expected cumulative payment on EUR warrants in 2012 and 2013 is €12.59, or almost 116% of today’s price, which is higher than the USD warrants. We prefer to avoid peso warrants for now given the continued pressure on the blue chip swap exchange rate market and the very high cost of hedging additional ARS risk. We therefore recommend buying EUR warrants at €11, and target a price of €13, with a stop-loss of €9.
Fuente: credito suizo
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