Albanesi shows high yield in latest Argentine deal

NEW YORK, July 20 (IFR) - Argentina’s Albanesi had the market to itself on Wednesday as it moved forward with a US$250m seven-year non-call four bond - the latest in a long list of offerings from the country.

The electricity group launched the trade (rated B3/B+) at 9.875% earlier in the day, offering the highest yield from an Argentina issuer so far this year.

The only exception is pulp company Celulosa Argentina, which tried but failed to sell a seven-year bond at 10% area earlier this month.

Uncertainty over the regulatory environment in Argentina, a recent deluge of supply out of the country, and the deal’s relatively small size requires this kind of pricing, said investors.

“This is an off-the-run, complex deal but the pricing in the high 9% range appears to compensate investors for that,” Jason Trujillo, an analyst at Invesco, told IFR.

The deal, which is guaranteed by Albanesi SA, is structured so that three subsidiaries are joint obligors.

Proceeds are going partly to repay about US$120m of secured debt at two of those subsidiaries - Generacion Mediterranea and Central Termica Roca - while the remainder will largely go to expand capacity.

Some accounts however have simply been unwilling to bet on the company’s expansion plans at a time of continued doubts about the outlook for the country’s electricity sector.

“The deal is predicated on taking the proceeds to add capacity and growing into the leverage and I am not comfortable with a deal like that,” a US-based investor told IFR.

While growth opportunities in an energy deficit country arguably bodes well for Albanesi, uncertainty about the regulatory environment gives the buyside pause.

“The main risk here is execution on their expansion plan which is significant as well as uncertainty around government regulation for the sector,” Trujillo said.

Most of the company’s subsidiaries also depend on contracts with the government, exposing it to payment and sovereign risks.

Fitch notes that Albanesi’s total debt to Ebitda stood at just 2.0x as of December 2015, down from the 4.2x seen in 2011, while net debt to Editda was 1.7x.

The rating agency expects leverage to peak at 4.6x in dollar terms after the issuance of the notes and drop below 3.0x in 2018 once new projects start operating.

US dollar denominated contracts provide a natural hedge for FX volatility, while just 36% of total debt is denominated in dollars, leads - Credit Suisse and JP Morgan - explained in a roadshow presentation to investors. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)