Buenos Aires City Nixes More Bond Sales Because of High Rates

Press Release

 
   By Shane Romig

BUENOS AIRES--Argentina's capital city isn't planning to sell more debt this year due to, among other things, the high interest rates investors are demanding, Buenos Aires City Finance Minister Nestor Grindetti said Thursday.

Global debt markets want exorbitant rates of about 15% because of federal government policies that have rattled investor confidence, Mr. Grindetti said.

The city would like to borrow more to fund infrastructure projects, but not at the current rates, the minister said on the sidelines of a press conference with Mayor Mauricio Macri.

Mr. Macri is a leading opposition figure and harsh critic of President Cristina Kirchner.

Mrs. Kirchner has spooked investors with draconian capital controls, an apparent tolerance for inflation that most economists say is above 20%, and a string of nationalizations, including the country's largest oil company, YPF SA (YPF, YPFD.BA).

Even though Argentina has restructured about 93% of the $100 billion in public debt it defaulted on in 2001, Mrs. Kirchner's government remains locked out of global debt markets as investors demand a high risk premium to lend her money.

Until early 2012, Buenos Aires was both willing and able to borrow abroad.

In February 2012, the city sold $415 million in five-year global bonds at a 9.95% interest rate. The previous year, it issued $475 million in five-year global bonds at 12.5%.

Buenos Aires has now turned to the domestic capital market to raise funding. Its dollar-linked bonds are in high demand by local investors looking to shield their savings from inflation and the depreciation of the Argentine currency on the regulated foreign exchange market.

The Central Bank of Argentina has allowed the peso to weaken about 7.4% against the dollar so far this year.

In March, the city sold $216 million in six-year bonds at an interest rate of just 3.98%. The bonds are denominated in dollars, but pay out in pesos.

Moody's Investors Service rated the dollar-linked bonds deep in junk territory at B3 with a negative outlook.

Despite the city's relative fiscal stability, a slowdown in the broader economy, rising taxes, and the uncertainty surrounding the exchange rate weigh on the rating, Moody's said.

"The lack of consistent and foreseeable policies at the national level affect the institutional framework under which the city operates," the credit rating company said.

Write to Shane Romig at shane.romig@dowjones.com

http://online.wsj.com/article/BT-CO-20130530-710497.html?mod=googlenews_wsj#