Cost of financing falls on Argentina's capital markets

The cost of peso-denominated financing on Argentina's capital markets fell in January, securities commission CNV said.

Compared with December, the average interest rate on all instruments fell.

For financial trusts the average rate fell 1,160 basis points to 59.6%, while for peso-denominated corporate bonds it fell 690 basis points to 50.5%. For secured post-dated checks, it fell 90 basis points to 47.6% while the rate for secured promissory notes dropped 240 basis points to 47%.

The central bank's benchmark interest rate started January at 59.4% and fell steadily, ending the month at 53.7%. The rate is currently around 44%.

Interest rates cooled as overall financing provided by the capital markets grew 6% month-on-month to 14.8bn pesos (US$381mn). Year-on-year, the January total was down 51%.

In the 12 months through January, overall financing contracted 40% to 175bn pesos.

Markets were buffeted in 2018 by fierce pressure on the peso and rising inflation and interest rates.

The peso-dollar exchange rate has largely stabilized. A risk factor is the presidential elections in October.

Stability on the forex front is seen as a vital part of the government's efforts to bring down inflation and reignite financing demand.

FINANCING INSTRUMENTS

In January, corporate bonds accounted for 38% of the 14.8bn pesos in financing provided, followed by secured post-dated checks (34%), financial trusts (25%) and secured promissory notes (3%).

The biggest registered local bond issue in January was made by lender Banco Supervielle, for 3bn pesos. This month fellow domestic lender Banco Provincia also sold local debt, 4.88bn pesos.

Argentine media outlet iProfesional cited an unnamed bank executive as saying that lenders have been taking advantage of favorable financial conditions to issue debt locally.

SME DYNAMISM

Last quarter the proportion of overall capital markets financing corresponding to SMEs hit the 35% mark for the first time ever. And in January the trend continued, with these types of businesses accounting for 37%, CNV said.

Argentina is working to spur its SME segment and, as part of plans to boost access to financing and reduce associated costs for these businesses, the government has launched an electronic invoicing scheme , which is being rolled out in the automotive sector first.

Under the system, an SME that submits an invoice to a large automotive industry client can either wait to be paid or transfer the invoice to securities depository Caja de Valores. Once in the depository, the instrument can be sold by the SME in the capital markets or the financial sector.