* Chaco shook debt markets by paying interest in pesos
* Swap would cover about $30 million in dollar bonds
* Currency controls mean province unable to buy dollars
* Moody's downgrades provincial, municipal ratings
BUENOS AIRES, Oct 17 Argentina's Chaco province
will offer to swap about $30 million in dollar-denominated debt
for peso bonds because authorities are unable to buy greenbacks
due to currency controls, a local government source said on
W edn esday.
The central bank refused to let Chaco buy dollars on the
foreign exchange market earlier this month, so the northern
province repaid creditors about $260,000 in pesos on
dollar-denominated bonds issued under Argentine legislation.
Rating agency Moody's described Chaco's move as a default
and then downgraded a host of Argentine provincial and municipal
debt ratings to reflect the heightened uncertainty. Argentina's
economy minister has accused ratings agencies of issuing
The source at Chaco's provincial economy ministry said
details of the voluntary debt swap offer could be announced in
the next few weeks.
"The idea is to retrieve the bonds in dollars. Obviously the
offer should compensate for the fact that they are no longer in
dollars ... so it's attractive to the market," the source said,
speaking on condition of anonymity.
National and provincial bond prices sank last week in the
wake of Chaco's decision to pay its dollar obligations in pesos.
President Cristina Fernandez has limited access to dollars
in the last year to stem capital flight. This was the first time
a province was unable to buy greenbacks due to the restrictions.
The central bank said the currency limits affect only a
small amount of dollar debt issued under Argentine law. It said
debtors who issued bonds under foreign legislation would be able
to buy foreign currency to service that debt.
The two bonds eligible for Chaco's voluntary debt swap were
issued in 2006 with a coupon of 4 percent and maturities in 2015
and 2023. Some $10 million is outstanding on the first bond,
with about $22.2 million left on the longer-term issue,
according to the Economia y Regiones consulting firm.
Chaco's plan to issue new peso bonds "formalizes a de facto
situation," said Boris Segura, a fixed income strategist at
Nomura investment bank. "It is clear that the dollar-denominated
Chaco bonds have been pesified already by the central bank, by
denying dollar access to the province to service them," he wrote
in a note.
Segura said he did not expect other issuers such as Buenos
Aires province, the capital, or Cordoba province to follow in
Moody's downgraded Argentine provincial and municipal credit
ratings on Wednesday, arguing that they faced "growing risks ...
to access foreign currency in an environment of increasingly
restrictive policies by the central bank."
With the exception of Formosa province, which was placed
under review for a possible downgrade, all the new ratings were
given a negative outlook to reflect deteriorating conditions in
Argentina, including an economic slowdown and rising fiscal and
foreign exchange pressures.
"The lack of consistent and predictable policies at the
national level affects the institutional framework under which
provinces and municipalities operate and ultimately anchors
their credit quality to that of the sovereign," Moody's said.
The city of Buenos Aires' foreign currency debt rating took
a big hit, knocked down two notches to Caa1. This put it under
the sovereign B3 rating and in line with other downgraded
provinces, such as Buenos Aires province and Cordoba.
Moody's also sharply downgraded the local currency debt
ratings of Chaco and Formosa provinces, the two districts most
directly affected by the central bank's restrictions.
Argentina, Latin America's No. 3 economy, has been virtually
shut out of international credit markets since it staged the
world's biggest-ever sovereign debt default at the height of a
2001-02 economic crisis.