In the last few years, Argentina’s headlines have been split between short-term challenges and medium-term opportunities. The short-term challenges have been dominated by macroeconomic imbalances and legal challenges from holdouts following 2001’s default. But despite those challenges, worldwide investors are looking for an entry point to capture medium-term opportunities. Puente has prepared itself for that point, enlarging and strengthening a structure that has the capacity and expertise to support and accompany investors’ demands.
Puente has been a pioneer in the intermediation of financial opportunities for both the public and the private sector
Argentina’s opportunities arise from the existence of high shale resources, a low level of public debt, and an unleveraged private sector in a country where investment as a share of aggregate demand has lagged in the last decade. As the leading regional investment bank, Puente has been a pioneer in the intermediation of financial opportunities for both the public and the private sector, with the most important corporations and sub-government entities in the country entrusting our business.
Puente’s expertise has let clients exploit these medium-term investment opportunities through a combination of well-designed strategies and best-in-class professionals who are trained to exceed expectations. Amid a challenging and volatile environment, Puente has made solid investment recommendations on fixed-income, equity, and exotic derivatives – such as GDP-Warrants – and has been one step ahead of its competitors in the region when providing advice. With more than $1.4bn in AUM and an annual trading volume of $10bn, the company has leveraged on local expertise and high technical skills to provide clients with strategies which allow them to profit by optimising their use of time and mitigating risk.
Vaca Muerta: a game changer
The game changer for Argentina’s medium-term prospects is Vaca Muerta, an oil and gas reservoir with the second-most extensive shale gas resources and the fourth-largest shale oil resources in the world, putting the country at the higher end of the league table for recoverable resources (see Fig. 1 and 2).
Since 2008, Argentina’s energy trade balance has turned negative, becoming a burden to external accounts. Vaca Muerta has the potential to turn the balance upside down by making the country a net exporter of both natural gas and oil in the next decade, reducing balance of payments risks. Along the way, Vaca Muerta’s potential could attract an average $25bn per year of inflows, boosting growth and domestic demand.
The investment required to fully exploit the energy potential is bound to spill over to other sectors, such as steel and transportation, creating opportunities for an array of companies. These opportunities will be particularly permeable in a low-leverage environment, for both the private and the public sector, which should naturally be accompanied by an increase in financial services and capital markets’ demand from these entities. Puente is ready to step in wherever it can create value, and has gained itself a solid reputation in the business for understanding where the demand is, making Argentina’s upside a one of a kind growth opportunity for Puente as well.
A burgeoning private sector
The government has followed markedly expansive fiscal and monetary policies in the last decade, mostly oriented towards boosting consumption and reducing income inequality. However, these policies have dramatically reduced investment rates, which have remained around 15 percent in the last decade. Domestic savings have been below international averages, and foreign inflows have been scarce, dragged by macroeconomic imbalances and legal risks around Argentina’s debt litigation case.
Argentina’s corporate sector has experienced a steady decline in leverage along higher corporate profits despite high costs of borrowing abroad, in a context of high sovereign yields. The ratio of corporate debt as a fraction of GDP has gone from 45 percent in 2003 to 24.4 perecent by 2013, half the average of Latam peers. The reduction in leverage has left the corporate sector in a favourable position to exploit an eventual reduction in sovereign yields, raising expectations for the near future of this sector’s demand for financial intermediation services. The ability to provide strategic advice, make markets, and guarantee liquidity provision and safety custody will be the determinants to fulfill the required role of financial services provider.
In the public sector, the restructuring of debt following the 2001 default drastically reduced the debt burden. After a high-growth period, the economy ended 2013 with a public debt ratio of around 45 percent, with less than a third of it owed to the private sector. In a country with infrastructure bottlenecks and growing development, the range of opportunities to boost productivity and growth will go from the construction of highways to energy projects. In this context, financial intermediation is bound to have a fundamental role by channeling both external and domestic savings into productive investment projects.
At Puente, we understand that the public sector requires a perfect blend of trustworthiness, efficiency, and expertise, which, having developed ourselves a reputation for serving accordingly, places us in a key role.
A sub-sovereign bookrunner
Argentine provinces have been issuing debt in the last few years to finance infrastructure projects, and Puente has collaborated with them to this aim. Puente has been the main placer of sub-sovereign debt in the domestic markets, accounting for 75 percent of the market share ($1854m) in the period 2012-13.
Puente has participated in issuances of the City of Buenos Aires, the Province of Buenos Aires, Cordoba, Chubut, Entre Ríos, Mendoza, Chaco and Neuquen, among others. Funds were used for large-scale projects that have markedly changed the economic potential of the regions, such as the Metrobus in the City of Buenos Aires, an alternative public transport solution to urban traffic, a plant for treating urban solid waste in the City, and investments to increase the transmission and distribution of electricity in Chaco.
Puente has also participated in the issuance of corporate debt, which has allowed for revenue smoothing and the financing of productive projects, some of them related to the energy sector. Some of the biggest companies in the country have trusted Puente for their debt issuances, such as YPF, Petrolera Pampa, IRSA, TGLT, Grupo Roggio, and Cresud, among others.
Staying one step ahead
Argentina’s medium-term potential will require financial intermediation to be fruitful, and that is where Puente’s expertise and its value-adding business model steps in. Puente has accompanied clients on plain-vanilla public and corporate issuances, public-private partnerships (PPP), and solid investment strategies, delivering tailormade financial solutions. The company has also launched an infrastructure division to accompany cities and states in developing infrastructure projects, making evident our contribution to economic development in the region.
In the last few months, the country has gone through a challenging macroeconomic and legal transition. On the macroeconomic side, the expansive policies of the last few years have led to imbalances that triggered exchange rate devaluation and an interest rate hike in early-2014. On the legal side, the country lost its long-standing battle with holdout creditors from the 2001 debt exchange, introducing uncertainty among investors. Those risks have increased yields and volatility, but have also left some low-hanging fruit for well-informed investment strategies. Our strategy and sales teams work daily to detect those opportunities.
Along the bumpy road of short-term risks, Puente has developed strategies that have beaten emerging market returns, enhanced by accurate market timing and a precise evaluation of risks. Puente’s strategies have been grounded on solid economic analysis, looking at both short-term volatility and medium-term opportunities, and its enrooted understanding of the markets of the region. Its strategy team has covered a comprehensive array of asset allocations, with a main focus on sovereign and provincial debt issuances, both domestic and external, but has also analysed corporate credits, equity, and exotic derivatives, such as GDP-Warrants. Our recommendations have stood ahead of our competitors, providing our clients a one-of-a-kind quality service.
A partner for life
With plenty of investment opportunities on the horizon, Puente is now extending its activities toward public-private partnership (PPP) projects and infrastructure. With our interest in creating value and contributing to economic development, a new infrastructure division has been created to assist cities and states in developing projects from scratch, with the company already becoming actively involved in assisting clients in PPP projects in both Argentina and Uruguay.
Puente’s value resides in its unique ability to understand the idiosyncrasies of local Latin American markets, providing sound investment strategies and exploiting opportunities in a challenging environment. It is also steadily committed to putting its clients’ interests first, creating solid relationships that are long lasting.
As Argentina’s medium-term potential expands, Puente’s horizons in the region follow suit, making its reputation for top tier service provision and professional quality its most valuable asset.