AA2000, Edenor, Pampa Energía and Telecom are just some of the firms affected and that could suffer restrictions to access funds from abroad
By Andres Sanguinetti
31/03/2023 – 20,58hs
Last week, Argentina decreed that certain non-financial public sector entities (mainly Anses) must exchange or sell their holdings of dollar-denominated local and international law bonds, issued in the 2020 restructuring, for local law debt denominated in pesos.
Since these bonds are intra-governmental holdings, international credit rating agencies considered the transaction to amount to a default.
However, they understand that the proposed transaction suggests greater risks and vulnerabilities surrounding the payment of commercial debt in foreign currency.
Economic instability: 11 Argentine companies at risk
By case S&P Global Rankings opted to downgrade Argentina’s long-term foreign currency sovereign rating from ‘CCC+’ to ‘CCC’ and confirmed that ‘CCC-‘ long-term local currency rating.
As explained by the evaluator in a document, “the negative perspective of the long-term ratings reflects the risks related to pronounced economic imbalances and political uncertainty before and after the 2023 national elections”.
But S&P extended negative forecast to 11 Argentine infrastructure companies whose rating was also downgraded to ‘CCC-‘ due to higher transfer and convertibility risks.
Telecom and other companies may suffer restrictions to access and send funds to and from abroad.
The evaluator understands that the trend for these entities is negative, and reflects potential additional restrictions to access or transfer funds abroad in the near future, including regulations that force them to unilaterally restructure their debt maturities in foreign currency, as was the case at the beginning of 2021, “a situation that we normally see as equivalent to default,” they indicated.
In their document, S&P adds that the trend and ratings also incorporate the possibility of a deeper recessionaffecting the ability of these entities to generate enough income in local currency to convert it into the funds necessary to meet obligations in foreign currency. “We could raise the ratings if our perception of T&C risk decreases,” argues the document in which the list of companies with negative ratings is also published.
The affected companies are Aeropuertos Argentina 2000; AES Argentina Generation; CAPEX SA; General Fuel Company; CLISA-Latin American Infrastructure & Services Company; Edenor; Pampa Energía and Telecom Argentina. Also added are Transportadora de Gas del Sur (TGS); and YPF Electric Power.
Lack of clarity: YPF, among the firms affected
As an example of risk, S&P mentions YPF. Ensures that the downgrade of the state oil company “follows similar action on sovereign ratings long-term foreign currency bonds and Argentina T&C, following announced plans that, if implemented, would force some non-financial public sector entities to exchange or sell their holdings of dollar-denominated local and international law bonds issued in the 2020 restructuring, for debt under local law denominated in pesos”.
In the opinion of the rating agency, the lack of clarity and the apparent motivation for the potential transaction “underscore the greater credit vulnerabilities, in particular, given the increasing pressures of the severe drought facing Argentina, which further constrains the already upset FX market.” This expected increased pressure on FX markets also explains the downward revision of the T&C assessment to ‘CCC-‘.
For S&P, this “reflects our perception of the risk that the sovereign interferes with the ability of domestic companies to access, convert, and transfer money abroadwhich is essential for affected companies to pay their financial obligations, many of which are denominated in foreign currency, particularly US dollars.”
The S&P evaluator took into account Massa’s decision to exchange dollar bonds from Anses, for his rating.
Although some of these entities do not face significant foreign currency obligations in the next 12 months, the rating agency recalls that Argentina’s recent history of forcing entities to restructure foreign currency debt in times of severe external account weakness, such as the actual, the probability of a similar action in the coming quarters increases.
“The trend for these entities is negativereflecting potential restrictions on accessing or transferring funds abroad in the near future, including additional Central Bank regulations requiring Argentine entities to unilaterally restructure foreign currency debt payments, as was the case in early 2021, a situation we normally view as tantamount to a default,” S&P warns.
The report adds that the negative trend of these entities also reflects the possibilities of a deeper recession, together with rising inflation, a strong depreciation of the peso, which in turn could reduce the ability of companies to generate sufficient income in national currency. to convert them into the necessary funds to service the obligations in foreign currency.
