On June 19, 2017, Luis Caputo surprised the markets by successfully completing the placement of a new bond, the duration of which would be unprecedented for the long (and sad) history of Argentina’s voluntary debt operations. That day, the then finance minister launched the so-called “Centennial” bond, which would expire in 2117, and which should be paid for five generations. This 100-year term bond was issued for about $ 2,759 million, it would have a fixed income coupon of 7.125% per year. The placement was a real success: investment requests for the title totaled about $ 970 million, which, according to the official, represented that “such an issue is possible thanks to the fact that we managed to restore the credibility and confidence of the world. in Argentina and in the future of our economy ”. He also added that the country showed “prudence and responsibility.” With this operation, it was one of the few countries in the world that had managed to issue this type of debt, along with Mexico, Belgium, Ireland, China, Denmark or Sweden.
“We are closer to normal countries such as Belgium or Mexico than Venezuela, with whom the previous government used to borrow 5 years and at rates of 15%. It is a seal of trust not only in this administration, but also in the future of the country ”, added the Minister of Finance. At that point, for 2017, Argentina would add some US $ 12,750 million under foreign legislation; and was preparing to cover a program for about $ 2.6 billion more in the remainder of 2017 and another $ 8,000 by January 2018. According to Caputo, the issuance of the Centenario bond was justified in that the conditions in the market in dollars are “too good to pass up.”
Having cut at its launch au $ s90 for each sheet of u $ s100, the exact thing would be to say that the Government of Mauricio Macri took u $ s2.475 million, for which it should have paid in 2117 u $ s2.750 million, plus US $ 196 million over a century, since the bond does not have periodic repayments of capital. That is why it was stated in those days of 2017 that the yield of the bond is equivalent to 7.91% per year on capital. The operation had been closed by Citigroup and HSBC as managing banks, while Nomura and Santander acted as joint managers.
Curious parable of this bond: the same HSBC will be in charge of explaining to the holders of this debt (and the rest of the $ 68 billion that must be restructured since yesterday) that this Global 100 Bond or “Centennial Bond” it will be the only one that will give some satisfaction to the holders: it will be the only one that will be paid before. Instead of in 2117, it will finish liquidating in 2045. Of course, with an interest reduction that reduces the yield to less than half and a capital reduction of 5%. Likewise, it could be said that, in the current framework left by the coronavirus in international finances, it would be the only aspect of the debt proposal that Argentina submitted to the SEC yesterday that could be considered a not so bad business.
Something more about the operation. Although the placement was announced to obtain about $ 2,750 million, in reality about $ 2,475 million came to the Central Bank, since the sheets were placed with discounts of 10%, so debt was actually settled for US $ 90 for each sheet of 100. This raised the final rate to be settled to 7.91%, and not to the 7.125 announced. In general, the debt is placed in large investment banks, since it was a very private operation and at a very private level. In fact, it was only announced one day after it was finalized, since the placement was carried out successfully but with few strong hands, which were later distributed only to VIP clients, both Argentine and abroad. For high-flying investment funds, the 100-year bond option had logic to guarantee a significant annual capitalization flow for the long term, with a rate unusual in the financial world of 2017, when the international interest rate operated at negative levels. Then the outlook would change in the first quarter of 2018, when the United States Fed began its bullish run on rate rates for 10-year bonds. In April of that year the Argentine Calvary would also begin, which still remains.
In June 2017, the operation of the 100-year bond was rated the “craziest” decision in the world in economic policy. The opinion came from the editor of the Economics section of the Financial Times newspaper, Robin Wigglesworth, who carried out a survey through the social network Twitter in which he consulted his followers: “What is the greatest madness?” (What is the craziest), in economic matters worldwide; and among the options included the Argentine bond released by Caputo. Finally, he was the winner with 71% of the votes.
If there is luck with the exchange of the “Centennial”, the reduction of the debt will not be substantial. And it will simply go from $ 68,000 to $ 66 billion. But at least there will be a World Cup swap match where it could show success in abandoning a somewhat bizarre option launched by the previous government.