BUENOS AIRES, March 9 (IFR) - Argentine gas distributor TGS can meet around US$240m in bond payments in coming years but may consider refinancing options if spreads keep pushing tighter, a source at the company told IFR.
Cash flow can cover principal payments on amortizing bonds due 2017 and 2020, but TGS might “look at the possibility of lowering rates to reduce the cost of financing,” he said.
TGS enjoyed stronger-than-expected results in the fourth quarter with Ebitda of Ps461m (US$30m), but the predominance of dollar debt on its balance sheet meant its net income took a substantial hit following Argentina’s devaluation in December.
While dollar debt carries its own risks, cheaper rates and the longer tenors available abroad may be enticing enough to encourage TGS to return to the international capital markets.
The borrower still has some US$180m in payments due on the 2020s and another US$60m on the 2017s.
The 9.625% coupon on the 2020s looks particularly expensive, and it may make sense to tap the market for cheaper money if yields on Argentine assets shrink.
The 2017s were quoted at 9.4%-7.8% on Tuesday, while the 2020s were hovering around 9.2%-8.9%, according to Thomson Reuters data.
Argentine bond spreads have narrowed in recent weeks in anticipation of a 12-year debt saga with holdout investors being resolved, but upside has been capped by the threat of more supply from the sovereign, provinces and corporates this year.
Investors are also holding judgment on the government’s efforts to restore economic growth while also tackling rising inflation and a growing fiscal deficit.
Beyond liability management deals, any further debt issuance would require an increase in capital expenditures, which depends on economic growth and the outcome of negotiations over tariffs capped by the prior administration, the source said.
TGS defaulted in 2003 after a downturn in economic growth following Argentina’s own default two years earlier. The issuer restructured its debt in 2004 and returned to market in 2007 with the 7.875% 2017s.
The company last issued international bonds in early 2014 when it offered to exchange up to US$374m of the outstanding 2017s for new 9.625% 2020 in an effort to extend maturities. Citigroup and JP Morgan led that transaction. (Reporting by Paul Kilby; Editing by Davide Scigliuzzo and Marc Carnegie)