Argentina's YPF to pay high rates on local bonds-sources

Tue Sep 11, 2012 5:39pm EDT

* Rates on short-term bonds to reach more than 17-18 pct

* Local debt say seen as key credit test of YPF

* Government nationalized leading oil company in May

BUENOS AIRES, Sept 11 - Argentine energy company YPF is offering hefty interest rates to ensure the success of a local debt issue - the company's first foray into credit markets since its nationalization, banking sources said on Tuesday.

YPF, which President Cristina Fernandez nationalized earlier this year, has offered to sell up to 1.5 billion ($322 million) in short-term bonds and most of the paper is expected to be bought by the state pensions agency.

The debt sale is seen as an important test for YPF, Argentina's biggest energy company, which needs to show it can raise funds locally despite investor concern over its takeover.

"It's a trial run in the market, but in practise it's almost a kind of patriotic bond," said one of the banking sources close to the deal, asking not to be named.

YPF plans to invest $37.2 billion over the next five years to reverse flagging oil and natural gas production in Latin America's No. 3 economy. It plans to finance 20 percent of that through debt sales.

Due to the inability of the domestic market to finance YPF's needs, analysts say the oil company will soon have to return to global credit markets.

"For a company of YPF's clout, this isn't much money, but it's a lot (for the Argentine market) at the moment," another source said.

The nine-month paper being offered this week will pay a fixed rate of between 17.5 percent and 17.75 percent with a variable rate of between 18.06 percent and 18.81 percent on the debt maturing in 18 months and 36 months respectively.

Such rates are higher than comparable issues. A central bank note maturing in nine months yields 14.5 percent annually.

"These are the rates that's the market's demanding," said one of the sources at a bank involved in the emission.

Annual inflation running at more than 20 percent and unorthodox government policies have lifted the rates paid on Argentine debt.

According to the sources, the Anses pensions agency -- which Fernandez's government regularly taps for financing -- will buy 1 billion pesos in the 36-month bond. A further 200 million are being offered to small investors.

It will pay the central bank's Badlar reference rate plus 400 basis points.

The 18-month bonds, of which up to 200 million pesos will be offered, will mainly be sold to insurance companies and investment funds at Badlar plus 325 basis points, the sources said. The nine-month bonds will go to insurers and private investors.

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