Argentina Weekly Report

A Hint of Recovery

July 7, 2017BancTrust & Co. Research Team
  • Argentina’s economy seems to be heading to recovery thanks to the recent results of Construction and Industrial Activity, which increased 2.7% m-o-m and 10.3% y-o-y, respectively
  • Century bond details were released and one of the more important features is that it is callable at any time that the government considers
  • Oil Company Pampa Energia suspended the issuance of a USD500mn bond due to uncertainty in the FX market after the MSCI decision and the recent pre electoral moves

This week, mix signs were released over the economic performance of the country, however we see the trend for upcoming months to show favorable results. In this regard, the first data released was the Monthly Economic Activity Estimator for April which resulted in disappointing news as the index showed no variation in the economic activity when compared to March results –march results, instead, were really good news as it presented a 1.5% advance-, meanwhile the y-o-y variation was 0.6%, while market expectations were above the 1% y-o-y. In the other hand, construction and industrial activity saved the week.

Argentina Weekly Report

The Argentinean Take Off

June 30, 2017BancTrust & Co. Research Team
  • The week started with high stakes on the possible but failed inclusion of Argentina in the MSCI Index, and the government century issuance. The latter resulted positive and gave support to the market view
  • According to the INDEC, the economy grew 0.3% y-o-y and 1.1% q-o-q in 1Q17. We expect upcoming quarters to performed similarly or even better
  • Next on the Argentinean bond pipeline are the Province of Cordoba and Entre Rios, looking to start a roadshow next week. While on Monday is expected a USD300mn issuance from oil company Pampa Energia

The week began with a very enthusiastic appetite from the markets for two main reasons: First, there was the surprising but welcomed news of a government issuance for 100 years, and second there was the possibility for Argentina to be included in the MSCI Emerging Market Index. However, by the middle of the week only the bond issuance turned into a reality.

Argentina Weekly Report

Expanding Energy Frontiers

June 27, 2017BancTrust & Co. Research Team
  • YPF will start increasing its electricity generating capacity reaching 4,500MWh for 2020 with an investment of USD3.12bn
  • National CPI pilot is expected for July and it is expected to not have a significant impact in the accumulative figures of the year
  • Former President, Cristina Fernandez de Kirchner, presented a new political party to compete in the parliamentary election

Recently, Argentina has been planning to get more independent and to get some control on its energy supply, so this week the state-owned oil Company YPF announced that is intending to increase its electricity generation to 4,500MWh for 2020 from 1,338MWh nowadays, so it would become the third largest generator of the country. The project will be carried out through the subsidiary “YPF Energía Eléctrica (YPF EE)” which represents a 1.5% of YPF’s EBITDA. The plan is to finance this expansion by selling a stake of the subsidiary, as there are needed USD3.12bn in three years to complete the project. In case that finding interested investors becomes a hard task, then it could be considered to do some investments through a project-finance structure; the final decision on this matter is expected to be known before 1st July.

In the short run, specifically for 2018, the generation is expected to increase in 575MWh after building three thermal plants in the provinces of Neuquen and Tucumen and a wind park in Chubut. In our view, if the plans materialize as expected, then the country will benefit as it could achieve some independence from the imports of energy that it has been doing from Bolivia, while it will help diversify more the energy sector, helping with a boost in the economic activity as well with the stabilization of the energy tariff policy stablished since the beginning of Macri’s administration.

On the consumption side, the National Institute of Statistics and Census (INDEC for its words in Spanish) informed that from July they will start measuring how the households consume energy, which will help in policy design for the uses of electricity and gas. This is a result of a cooperation agreement between the Energy Ministry and Indec, as they planned to normalize the energy market assuring the proper supply while reducing the environmental impact. The pilot for this new process will start in July when the Indec conducts the National Households Survey.

Argentina Weekly Report

Inflation is On the Right Track, But Detours are Still Possible

June 16, 2017BancTrust & Co. Research & Strategy Team
  • CPI results in May were significantly better than in April. Nevertheless, we stress the need to watch the monetary policy movements and the post-electoral environment to assess the feasibility of the 17% goal
  • IAEF sees the economy in the right direction but with an underperforming growth. Meanwhile, Dujovne considered that the current inflationary dynamic is positive and promised the delivery of a tax reform
  • Finance Minister Luis Caputo informed that next week will be issued a 3-year ARS-denominated bond, while for the end of the month would be issued a ER-denominated bond

CPI results for May show a sign of relief for Macri’s administration as it closed with a variation of 1.3% m-o-m – half of the figure recorded in April. With this result, inflation stands at 10.5% for the first five months of the year and in 24% for the YTD figure. If we see the figure of the first five months of 2016 (24.2%), there is a clear difference and an evident improvement. On the other hand, core inflation closed in 1.6%. It is also significant that the government measured this month an inflation rate below the one published by the Congress, which stood at 1.8% m-o-m. These results are an expression of the fact that the effect of the hike in tariffs is now dissipated, and it could stay like this for the upcoming months. However, local color sees that after mid-term elections we could see some increases in the index.

Argentina Weekly Report

Bittersweet Performance

June 9, 2017BancTrust & Co. Research & Strategy Team
  • Industrial activity fell 2.3% y-o-y in April, while construction activity recorded a stark 10.5% y-o-y growth for the same month
  • Argentina reaches a USD167.3mn accord with HWB Entities over holdout litigations; debt mediator Daniel Pollack expects to solve the 2% remaining within the next 6 to 12 months
  • During his presentation in the Congress, Chief of Cabinet Peña stated that Argentina could be closing July with a 21% y-o-y inflation, though the goal is to reach a single-digit figure for 2019

Argentina keeps showing tepid signs of recovery while macro fundamentals still do not portray the economic recovery the administration praises. Results published by the National Institute of Census and Statistics (INDEC, in Spanish) account for a fall in the Monthly Industrial Estimator (EMI, in Spanish) of 2.3% y-o-y in April, placing the performance of the industrial activity during the first four months of the year in negative territory (-2.4% y-o-y). With April’s result, industrial production accumulates 15 months in a row with a negative strike. Prior to the publication of these results, local analysts suggested that this month the trend could be reversed; nonetheless, the results surprised as the fall is larger than March’s result (-0.4%).

  • Wednesday, July 19 2017
    Venezuela

    -The National Assembly (AN in Spanish) approved the final reports on the popular consultation of 16 July and the candidates for magistrates of the Supreme Court (TSJ in Spanish). The latter is part of the process of one of the main items of the current agenda of “zero hour” established by the opposition party Democratic Unity Roundtable (MUD in Spanish), as the legislators expect to exercise their constitutional ability to name – on Friday 21 July – new magistrates and thus actively repudiate the current Supreme Court and i

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  • Tuesday, July 18 2017
    Venezuela

    - Following the results of the public consultation election on Sunday, the Democratic Unity Roundtable (MUD in Spanish) called for a 24-hour national strike on Thursday in protest against the National Constituent Assembly (ANC in Spanish) proposed by the administration of Nicolas Maduro. Furthermore, Freddy Guevara, deputy President of the Congress, said they expect to name the new magistrates of the Supreme Court on Friday. We can anticipate this move will not be acknowledge by both the government and the Supreme Court, but will u

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  • Thursday, July 13 2017
    Venezuela

    - S&P Global Ratings, following its Tuesday action of downgrading Venezuela’s rating, yesterday decided also to downgrade the corporate credit of Corporacion Electrica Nacional, better known as CORPOELEC (former ELECAR). The action resulted in a downgrade from “CCC” to “CCC -“while also maintaining the negative outlook. In detail, the rating agency argued that they are taking this action against the corporate as a result of the sovereign’s downgrade, as it reflects that this is a “government-related entity” (GRE

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  • Wednesday, July 12 2017
    Venezuela

    - A US appeals court blocked Exxon Mobil Corp from enforcing a USD1.6bn award against Venezuela for an asset seizure back in 2007. The court ruled that the judge made a mistake in excusing Exxon from complying with procedural requirements to enforce the October 2014 ruling. In this way, the court supported Venezuela’s point that Exxon should have tried to enforce the award under the federal Foreign Sovereign Immunities Act (FSIA), instead of streamlined procedures. All-in, Exxon's petition was dismissed without prejudice, meaning

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