Argentina’s improved sovereign creditrating has helped to spur the recent sub-sovereign andcorporate bond issues. In early April 2016, Standard &Poor’s upgraded Argentina’s sovereign ratings for local andforeign currency debt to B from B-. This follows the ratingsupgrade from Moody’s which raised Argentina’s sovereignrating for foreign currency denominated debt from C1 to B3in 2016. This rating was re-affirmed by Moody’s in March2017. Since Argentina’s re-entry into the internationalcapital markets in early 2016, there has been USD 8.4billion and USD 4.4 billion of bonds issued by sub-sovereignand corporate entities which is being used, in part, beingused to support infrastructure projects. Although investorappetite has been relatively strong, it is difficult toascertain the level of liquidity for sub-sovereign debt overthe long-term. The potential level of involvement of foreignand local banks in the financing of infrastructure is stillto be determined once Public-Private Partnerships (PPP)projects are tendered. Going forward, the issues that willimpact the participation of lenders are: (i) the timing forcompleting and implementing the underlying regulatoryframework for PPPs; (ii) the development of a projectpipeline and subsequent tenders; (ii) macroeconomicconditions. The ability of the renewable energy projectsunder the RenovAR program to obtain bank financing willserve as useful benchmark for the rest of the PPP program.Although the enactment of the capital markets law isintended to reduce market inefficiencies, additionallegislation, regulation and policies are needed to deepenand widen local capital markets. This law, which is stillunder legislative review, may not go far enough to developthe institutional investor base needed to provide long-termfinancing for infrastructure. Provisions could be added ornew legislation could be developed which will: (a) encourageinsurance companies to offer new types of products; (b)rebuild private pension systems by incentivizing theestablishment of asset management companies; (c) providingpreferential tax treatment for closed end mutual funds orvalue capture adjacent to real estate; (d) supporting theestablishment of REITs; (e) reviewing the governancestructure, mission, and investment strategy of the FGS; (f)support the development of long-term hedging instruments tomanage currency risk through trusts or related mechanisms;and (g) promote the issuance of peso-linked bonds whiledeveloping a peso/dollar hedge market.
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