The launch of a new stock market in Argentina for small- and medium-sized enterprises (SMEs) may make up for the lack of bank loans for the sector following the country’s devastating economic crisis and default on $105bn of foreign debt in 2001, even as larger companies are beginning to receive a warmer reception on Wall Street.
Argentina’s continuing indebtedness – it still has a total debt of $124bn, 57% of which is held by banks and individuals – plus the 70% hair cut it forced on the holders of $102bn in defaulted debt last year, has made it harder for Argentine enterprises to access the markets. This is despite Argentina paying off its remaining debt of $9.5bn to the International Monetary Fund on January 3.
The country is experiencing a strong economic rebound, with gross domestic product (GDP) up more than 9% in 2005, but international and local banks are still wary of lending, except to the most creditworthy companies.
IRSA, one of the biggest property developers and shopping centre owners in Argentina, with $890m in consolidated assets, is one such company.
Change in attitude
IRSA president Eduardo Elsztain says: “During the 1990s, until the Russian crisis of 1998, the capital markets were fully open to Argentina, but that crisis changed investors’ attitudes towards emerging markets.”
He says that his company made more than $3bn in capital transactions since 1991 but only $200m in the form of convertible bonds since 2002.
“IRSA survived Argentina’s economic crisis of 2001 and 2002 by holding only 35% debt. I think that is a suitable level for a company in an emerging market,” he adds. “We might have lost assets during the crisis if we had been more highly leveraged.”
Mr Elsztain says that most of his company’s convertible bonds were due to expire in 2007 and he expects to place another major bond this year.
Even the large privatised utilities have had problems raising finance internationally because the government has frozen their tariffs, says Mark Chlapowski, head of corporate finance at Buenos Aires-based stockbrokers Cohen Group. Instead, he says: “In recent years, the leading Argentine players on the international capital markets have been exporters of agricultural goods, such as Aceitera or Bunge. These companies are attractive because of their success at exporting their goods.”
Unwilling to lend
Alan Faena is president of the Faena Group, which owns the Faena Hotel and Universe, a fashionable five-star hotel in Buenos Aires, and is developing 250,000 square metres of residential property in the capital. He is considering a convertible bond in the next two years and an international stock exchange listing within four years. However, he was forced to bring in four US investors in 2001 when he set up the company as domestic banks would not lend him money.
“Debt is expensive and difficult to obtain in Argentina. It is ridiculous and I prefer to fund my company myself and through investors. Argentina is not a normal country. The banks are not in the game yet,” he says.
Bonifacio Lastra, the president of London Tie, a tie retailer that has 30 outlets in Argentina and is about to open more than 20 outlets in Chile, Miami and Madrid, also condemned the banks: “Argentina is a great country in which to do business but you need money in the first place. Without it, it is hard to become established as bank loans are very difficult to obtain.”
The Buenos Aires Stock Exchange is opening a new listing for SMEs, called the Panel for SMEs. Most of the companies joining the exchange have annual revenues of between $6m and $18m and were founded between 2001 and 2002 by the ex-directors of foreign firms that left Argentina at the height of the crisis.
Pasa IPO
The first to join the new market within the next few months will be Petroquímica Argentina SA (Pasa), which provides petrochemicals for the food industry. With an annual revenue of $6m it wants to carry out an initial public offering of $9m, which is between 15% and 20% of the value of the company.
Alejandro Patlis, Pasa’s president, says: “Bank credit does not exist in Argentina at the interest rates and with the duration that we need to grow.”
However, Mario Vicens, president of the Association of Argentine Banks, says: “From a regulatory as well as an economic point of view, it is easier to obtain credit on the part of those Argentine companies that have good projects and whose activities lie in markets seeing economic growth.”
Relaxed regulations
He says the monetary authorities have adopted a number of measures to loosen the regulations that banks must consider before granting a loan to an SME, making it easier for smaller companies to access credit.
Mr Vicens adds that the Argentine Central Bank had changed capital requirements since the crisis so that the private sector is no longer penalised in relation to the public sector when it tries to access capital, as was the case in the 1990s.
He says: “Perhaps the market where the situation is less favourable is that of medium- to long-term credit in US dollars. In the 1990s, access to international credit was more fluid but the crisis led to complications that have made it more difficult for enterprises to access this type of credit.”
Leonardo Bleger, general manager of Banco Credicoop, an Argentine mutual, agrees: “The conditions for credit for companies are much better. The amount lent by all banks to companies and private individuals has been growing by 35% a year. It is possible that a number of big Argentine companies would consider combining credit with some type of bond or other instrument. The credit market for smaller companies is more liquid. SMEs can obtain loans with rates of interest of between 10% and 12%, which is a good rate for this country.
“Yet the overall amount of credit to GDP in Argentina is low at 10%, compared with a Latin American average of 25%.”
Despite the increases in bank credit, many Argentine companies claim it is still very hard to obtain loans. Smaller companies such as Pasa will have to consider the Buenos Aires Stock Exchange as an alternative, while larger companies are starting to regain access to the international bond markets.
