IFR 08.24.2019

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Top news


Argentina goes back to the future


„ Emerging Markets Investors bow to the apparently inevitable as restructuring fears build once more


BY MILUSKA BERROSPI


Investors are once again facing
the possibility of a major
restructuring ARGENTINA’s debt as
markets price in the potential
return of a populist president
COMEûTHEûELECTIONûINû/CTOBER
Peronist candidate Alberto
&ERNANDEZSûUNEXPECTEDLYû
strong showing against
incumbent and market favourite
Mauricio Marci during primary
elections this month blindsided
accounts and sent the country’s
ASSETSûINTOûAûTAIL
SPIN
The sudden sell off in
response to the election results
was painful and swift in what is
still a crowded trade, leaving
some well-known investors
LICKINGûTHEIRûWOUNDS
With the peso sliding to a
RECORDûHIGHûOFûûTOûTHEû53û
dollar and a victory for
&ERNANDEZûLOOKINGûINCREASINGLYû
likely, many bondholders are


resigning themselves to another
DEBTûRESTRUCTURING
&ERNANDEZûHASûTHREATENEDûASû
MUCHû7HILEûHEûHASûVOWEDûNOTûTOû
default on the country’s debt, he
said last week that the government
would have to negotiate new
TERMSûWITHûCREDITORS
That feels a bit like deja vu to
many investors who remember
how former president Cristina
&ERNANDEZûDEû+IRCHNERû
ûNOWû
&ERNANDEZSûRUNNINGûMATEû
û
fought tooth and nail to avoid
paying holdout creditors before
Macri ended the legal battle just
THREEûYEARSûAGO

ROLLING OVER
In the meantime, the country
still has to roll over billions of
dollars of short-term debt and
convince the International
-ONETARYûTOûDISBURSEû53BNû
DUEûINûMID
3EPTEMBER
Both tasks will be tough as Macri
ANDû&ERNANDEZûVOICEûDIVERGINGû

messages to the electorate and the
market, threatening more capital
mIGHTûANDûANOTHERûDROPûINûTHEûPESOû
which further distorts the
SOVEREIGNSûDEBTûDYNAMICS
The country has about US$12bn
equivalent of peso and dollar-
denominated Treasury bills coming
DUEûTHROUGHû/CTOBERû ûJUSTûBEFOREû
THEûPRESIDENTIALûELECTION
Rolling over such debt is seen
as critical to maintaining market
CONlDENCEûANDûAVOIDINGûAû
WORSENINGûOFûlNANCIALûANDû
ECONOMICûCONDITIONS
“Secondary market spreads
can rise and fall depending on
the expectation of the policy
framework but the crunch will
come when debt comes due and
new issuance is required,” said
'RAHAMû3TOCK ûHEADûOFû%-û
sovereign research at BlueBay
!SSETû-ANAGEMENT
“So far this year rollovers have
been good, but for the rest of the
year and 2020 they have to keep

ROLLINGûOVERûûTOûûTOûHAVEûAû
FULLYûlNANCEDûPROGRAMMEv
While public banks and the
country’s social security institution,
Anses, can be relied upon to
support debt auctions, it is far from
certain that private investors - both
foreign and domestic - will be
WILLINGûTOûDOûTHEûSAME
“Both roll-over and fresh
lNANCINGûCOULDûBEûDIFlCULTûIFûLOCALû
and external borrowing conditions
do not improve markedly from
current stressed levels,” warned
Fitch after cutting the sovereign’s
RATINGûTOû###ûFROMû"ûONû!UGUSTû

DOMINO EFFECT
That downgrade in turn has
narrowed the universe of investors
ABLEûTOûBUYû!RGENTINEûDEBT
“The Triple C downgrade is
meaningful because there are a
lot of funds that can’t own Triple
# vûSAIDû%DWINû'UTIERREZûAû
portfolio manager with
!BERDEENû!SSETû-ANAGEMENT

WeWork heads for September IPO


but nagging doubts linger


„ Equities Down-round looks unavoidable after Uber and Lyft misfire


BY ANTHONY HUGHES


THE WE COMPANY ûTHEûmEXIBLEûOFlCEû
space provider better known as
WeWork, is forging ahead with
plans to go public next month
despite a wall of scepticism
rivalling even that surrounding
the much-maligned debut of
5BERû4ECHNOLOGIESûINû-AY
WeWork’s IPO is expected to
raise more than US$3bn and to
be launched shortly after Labor
$AYûONû3EPTEMBERû
The imminent launch has
triggered some brutal assessments
of its business model and
CORPORATEûGOVERNANCE
The company touts itself as a
disruptor of the real estate
business via its so-called “space-as-
a-service” business model
emphasising recurring revenues


from the fees paid by members to
TAKEûUPûSPACEûATûITSûûPROPERTIESû
INûûCITIESûAROUNDûTHEûGLOBEû
Founded in 2010, WeWork
DOUBLEDûREVENUESûTOû53BNûINû
THEûlRSTûHALFûOFûûBUTûNETûLOSSESû
WIDENEDûTOûAûMAMMOTHû53M
Still, bankers close to the deal
say the company won over some
of the legion of doubters with its
recent pre-marketing efforts,
including a meeting with
ANALYSTSûINû.EWû9ORKûONû*ULYû
“From all of the investors and
the banks we talk to, the
common refrain is that there
was a lot of scepticism when the
IPO talk charged up earlier this
summer,” said one senior ECM
BANKERûWORKINGûONûTHEûDEAL
“But as everyone has started
to dig into the story they have
been pleasantly surprised by the

business and the detail
management has been willing to
PROVIDEûLOCATION
BY
LOCATIONû4HEû
UNITûECONOMICSûAREûCOMPELLINGv
JP Morgan, Goldman Sachs and
Bank of America Merrill Lynch lead a
NINE
lRMûSYNDICATE ûCOMPRISINGû
all the banks that committed to
WeWork’s US$6bn credit facility
EARLIERûTHISûMONTH
JP Morgan’s asset
MANAGEMENTûARMûANDû'OLDMANû
Sachs are both shareholders in
THEûCOMPANY

DOWN-ROUND EXPECTED
WeWork’s most recent private
FUNDINGûROUNDûINû*ANUARY ûAû53BNû
raising led by Japan’s SoftBank,
VALUEDûTHEûCOMPANYûATû53BN
Already there are serious
doubts as to whether WeWork
can achieve anywhere near that

MARKûATûANû)0/ûREmECTINGûITSûLACKû
OFûPROlTABILITY ûITSûHIGHûCASHûBURNû
and concerns about multiple
CONmICTSûOFûINTERESTSûINVOLVINGû
CEO, co-founder and controlling
SHAREHOLDERû!DAMû.EUMANN
Manhattan Venture Research
earlier this month valued WeWork
at US$28bn, noting that any
enthusiasm for the company’s
market opportunity providing co-
working spaces to start-ups was
tempered by a growing list of
competitors and the risk of
holding long-term leases during an
ECONOMICûDOWNTURN
Manhattan Venture analyst
Santosh Rao said bankers
initially hoped to put a
US$120bn price tag on Uber
before taking it public with a
53BNûVALUATION ûSOûITûWASûALSOû
conceivable that WeWork would
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