IRSA, YPF try to beat Argentine supply surge

By Paul Kilby

NEW YORK, March 17 (IFR) - Argentine real estate company IRSA and oil name YPF are rushing to market this week ahead of an expected flood of issuance from the country in the coming months.

Following the sovereign's agreement with holdout creditors last month, Argentina's borrowers are weighing when best to issue bonds amid expectations of a supply surge this year.

The government moved closer to an expected US$11.68bn bond sale to pay litigant investors on Wednesday when it won the lower house's approval for the debt agreement.

President Mauricio Macri is expected to get the bill passed in the Senate later this month so that the government can issue the jumbo bond by a mid-April payment deadline.

IRSA and YPF are getting in ahead of the sovereign, as well as provinces and other corporates, as those deals could pressure secondary spreads and complicate deal execution.

"It is a tough zip code to think about," one syndicate manager told IFR. "It doesn't necessarily trade the way other countries do given the technicals."

Indeed, markets may already be pricing in expected supply dynamics - whether or not borrowers come before the government's jumbo offering.

"Given that we will have about US$35bn in new issuance out of Argentina this year, all issuers should pay a concession: otherwise investors should not buy it," said a broker.

IRSA is in the market with a US$300m seven-year non-call four bond via leads Citigroup and JP Morgan as it seeks to fund a tender for its outstanding 2017s and 2020s.

The real estate company, rated B-/B-, should benefit from the liability management transaction as investors are expected to switch into a new security issued by a subsidiary that generates most of the company's cashflow.

"We like the name and believe the company is one of the country's top credits with a unique portfolio of assets and interesting opportunities ahead," wrote analysts at a local brokerage.

"Moreover, it should benefit from the macro changes expected under the new government."

IRSA was expected to price the deal on Thursday at a final yield of 9% after releasing guidance earlier in the day at 9.00%-9.25%.

At that level, it would print in line with secondary levels of the country's freshest comparable benchmark - the Province of Buenos Aires 9.125% 2024s, which have tightened to around 8.97% after pricing last week at 9.375%.

IRSA's trade also offers an approximately 100bp pick-up to the sovereign's Bonar 2024s, which have been trading with a yield close to 8%.

"I see orders coming from retail accounts," said the broker. "The 9% handle generates demand. It should do well."

YPF meanwhile announced initial price thoughts of 8.875% area on an up to US$1bn five-year bond, rated Caa1/CCC+, that is scheduled to price Friday through leads Credit Suisse, JP Morgan and HSBC.

The oil company has seen its spreads come under pressure during the recent rout in crude prices, and it may be trying a shorter-dated tenor to reduce the cost of funding.

YPF's 2024s, which have a seven-year average life, were bid at a yield of 9.15% on Thursday, down from a recent high of 10.44% on January 19, while its 2025s were yielding around 9.125%.

"(YPF's bond) is not cheap in my view," said the broker. "Buenos was a deal where the issuer was willing to pay the concession." (Reporting by Paul Kilby; Editing by Marc Carnegie)