Argentine Province Looks to Locals


Looking to restructure its debt, the Argentine province of Misiones is braving the local market with a $100 million securitization of co-participation taxes.

The deal, which bankers are hoping to close before year-end, is being managed by Banco CMF S.A. and Banco Macro S.A. Duff & Phelps Credit Rating Co. and Standard & Poor's Ratings Services will rate the deal.

"The province of Misiones has taken very serious measures to improve its economic situation, but it still has a high volume of costly debts," said Gersan Zurita, head of public finance at Duff & Phelps. "By securitizing some of its co-participation taxes it will be able to reduce its debt and obtain long-term capital."

According to Argentina's Co-participation Law, the federal government transfers a percentage of the federal taxes to the provinces that signed the Fiscal Pact of 1993. Misiones, for instance, is guaranteed to receive $24.35 million in such taxes monthly.

In return, the provinces agreed to structural reforms in their economies. These agreements are set for renegotiations that will begin on December 31. The imminent changes raised some concerns in the market but sources agreed that any reduction in the percentage of co-participation taxes that go to the provinces is out of the question.

Co-participation deals have become very popular with Argentina's provinces. Since 1997, the provinces of Tucuman, Santiago del Estero, Rio Negro and Formosa have tapped both local and international capital markets as a way to avoid high interest rates on bank loans.

However, conditions are not perfect. "The economic recession and political uncertainty surrounding the recent elections has caused a drain in the local capital markets," explained Zurita. "As a result, investors are demanding interest rates of around 15%. For a deal with a AA local rating that is quite high."