Cash & Working CapitalFXRegional

Beyond Bopreal: Argentina’s Long Road To Relaxed Controls

By May 2, 2024No Comments

Why some NeuGroup members say they won’t buy Series 3 Bopreal bonds to send dividends out of the country.

After four months of auctioning Bopreal bonds that allow importers to pay off cross-border debts, Argentina’s central bank (BCRA) is responding to flagging demand by opening up the bonds to companies seeking to distribute profits or dividends—perhaps as soon as the next auction, May 6. This has been interpreted by some observers as a first step in lifting capital controls that have left multiple billions of cross-border dividends unpaid—the result of most cash repatriations via dividend requiring approval by the BCRA since Sept. 2019.

  • But here’s the rub: NeuGroup member companies expressing views in sessions and to NeuGroup Insights are decidedly unenthused about buying the bonds to pay dividends. One called them “very uninteresting.” One reason is the belief that if capital controls are lifted anytime soon, it will pay to wait for better terms.
  • “If you’re going to buy one of those bonds, then you do not believe they will open up the spigot in the short term,” one member said. He agreed, though, that allowing the bonds to be used to pay dividends may help start opening the spigot. “It’s certainly worth a try.”

Series 3: no thanks. A number of NeuGroup members purchased the first two series of Bopreals, which mature in 2025 and 2027. Many sold the bonds in the secondary market, taking a significant haircut to access the funds immediately, freeing trapped cash. Here are some specific reasons members said they don’t plan to purchase the Series 3 Bopreals, which mature in 2026 and yield 3%.

  • One company’s Argentine subsidiary has used trapped cash as working capital and does not have much remaining.
  • Another corporate’s subsidiary has too much outstanding intercompany debt to focus on paying dividends.
  • Others don’t want to wait two years for the bonds to mature or sell them on the secondary market at a steep discount.
  • Some members say they can get better deals from other investments.

A banker on Bopreals. In an interview with NeuGroup Insights, Banco Comafi’s Mateo Gall agreed with one member who said Series 3 Bopreals used to pay dividends may make sense for corporates with large, retained earnings. “They might be interested,” he said. “Those corporates find it hard to do any of the alternatives a lot of NeuGroup members have done.”

  • That said, in a recent session of NeuGroup’s Argentina Crisis Community, Mr. Gall discussed options beyond Bopreals to free trapped cash. He recommended they purchase “hard-dollar bonds” issued by local companies. They’re dollar-denominated, offer maturities as short as one year, and allow the purchaser to lock in the blue-chip swap rate at the time of purchase.
  • Blue-chip swaps are transactions accessing an unofficial FX market that, if used by a corporate, means the company can’t access the official FX rate for 180 days. Mr. Gall said one of the first steps the government will likely take to open the so-called spigot is to cut down that waiting period.
  • “They are trying to take away demand for dollars before lifting controls,” he said. Mr. Gall added that the aim will be to “start to lift controls, causing the blue-chip swap and official FX rate to trend closer together.”

Waiting game. What most members want to know, of course, is when today’s capital controls will be history. Gabriel Gomez-Giglio, the chair of Baker McKenzie’s Latin American banking and finance practice, said “it is a question of when, not if” the government will begin to lift controls in the short-term. “The government needs investors to start doing their part and shall be sending messages in this direction shortly.”

  • Last week, Argentina president Javier Milei celebrated the peso’s performance against the US dollar in 2024 and earlier this year said he aims to eliminate capital controls as soon as this June. Few people believe that. Mr. Gall said an optimistic but realistic view might be to expect a relaxation of controls by the end of the year. But many members are not that optimistic.
  • “There’s no way currency controls could sustain going from massive to none within a year,” one treasurer said. “You’d need to open the spigot a little bit, and a little bit more, and a whole host of things to go right for Argentina over five years—at best.”
Justin Jones

Author Justin Jones

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