The Argentine government is seeking financing of up to US$2 billion in the domestic market to pay off a US$4.5 billion debt due in July. This decision has become necessary as the option to issue debt in the international market is complicated by the country risk remaining above 500 basis points. To this end, a new dollar-denominated bond, AL27, will be issued tomorrow, featuring a 6% annual coupon and monthly interest payments. The bond will mature in October 2027, coinciding with the presidential elections to be held that year. The bond can only be subscribed in dollars and will be governed by Argentine law. The following day, a second, expandable round for US$100 million will be held at the same cut-off price, according to official information processed by the Argentine News Agency. The reasons for this decision are multifaceted: there is a significant supply of dollars from negotiable obligations being issued by companies; new debt issuances from provinces are also expected; there will be a good flow of dollars in the coming months due to the volume of the grain harvest, which has been revitalized by recent rains. Furthermore, the government aims to capture funds that are 'under the mattress' under the new Tax Innocence Law. From a financial management perspective, the issuance of this bond will allow the Central Bank to issue fewer pesos to buy dollars and rebuild reserves. This also means it will not need to sterilize those pesos, an action the National Treasury had been taking in recent weeks by withdrawing more pesos than needed in auctions. Additionally, the new bonds will become a direct obligation of the National Treasury. The auctions for this bond will be held jointly with peso-denominated bond auctions, respecting the calendar already set by the Secretariat of Finance. In this call, US$150 million will be auctioned off, where interested parties will offer the bond's price. This absorption of dollars through these bonds will also help support the price of the dollar in a context of higher demand, as investors, instead of liquidating in the market, can subscribe to this bond. This measure is announced at a time when the country risk closed at 529 points, raising doubts about the government's ability to achieve a debt rollover with external financing. On the other hand, an attempt is being made to send a signal to international investors that Argentina has domestic financing to obtain dollars to pay its foreign currency obligations.
