PBI coupons: pay if the Argentine economy grows, but in the City they prefer bonuses and shares

They pay annual rent if the economy grows above a certain level. In this case, 3%.

If investors detect that there are high chances of this happening, they go out to buy and their prices climb.

This is precisely what has been happening with the PBI coupons. Such is so that the titles that increased more of price throughout the year. Not only that: the volume operated was multiplied by six in this last time.

In order for payment to be activated, three requirements must be met:

– The growth of the economy must exceed 3%

– Real GDP must exceed the GDP of one year taken as a reference

– That the accumulated payments have not yet exceeded 48 cents

So far, there is no full certainty that the economy will grow above 3%, one of the conditions that triggers cancellation. However, the market looks optimistic and gives it chances to make this happen.

This good climate was reflected in the skyrocketing price of 32% and almost 60% according to the different versions of this instrument: euros, dollars (local or US legislation) or pesos.

Clearly, this increase is a product of more auspicious economic indicators, on the one hand, and the good electoral performance of the macrism, on the other.

However, there are several analysts who put cold water tables and recommend caution, as it is still uncertain that the conditions for payment.

According to the Focus Economics survey in October, the forecast of local economists and foreign entities is that the GDP will grow by 2.7% in 2017.

These projections add to the IMF’s forecast of an increase of 2.5% for the current year.

That is, according to estimates, there is no certainty that the coupon will be paid, beyond a few tenths of a distance.

Juan Manuel Pazos, from Puente, says: “We were expecting a rise in PBI coupons like the one we saw in recent weeks, as a result of the improvement in growth expectations.”

– Six months ago, the market consensus was a rebound of less than 2.5% of the activity level.

– In September, the Central Bank survey – based on estimates of about 50 analysts (REM) – shows that this figure increased to 2.8%.

– Meanwhile, some forecasts refer to an increase of more than 3%, which would trigger the payment (in December 2018).

How much would the Government imply the cancellation? According to Federico Furiase, of the Bein Study, the sum of the titles in dollars, euros and pesos would mean a disbursement in the order of u $ s 2,500 million.

The other big question
Doubts about what GDP growth will be in 2017 adds another non-minor unknown: the basis of comparison that will be taken by the Government to decide whether or not to accept the cancellation.

This is what happened:

– In order to measure how much the country is growing, the year 1993 was taken as a starting point. In other words, it was the “basis” for analyzing the evolution of subsequent periods.

– This was discontinued and a new series rearmament, with reference in 2004.

– Then, the Kirchner government introduced a new parameter: 2012, to avoid coupon payment, manipulation of INDEC.

– Now, the Macri government must decide which year should be taken as the basis of comparison: 2004 or 2012 (or some intermediate).

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“While rumors are heard that it will take a market-friendly resolution, the truth is that there is still no full certainty that it will end up considering the 2012 base,” says Juan José Vázquez, Cohen Sociedad de Bolsa.

In contrast, several economists argue that it should use reference to 2004. For Vázquez, statistically correct, as the new INDEC authorities re-estimated the period 2004-2015 and, for that, determined 2004 as a parameter.

“To establish a new scale considering a different data would be to recognize the distortions of the Kirchner INDEC, which overestimated growth,” summarizes the analyst Cohen.

For Rafael Di Giorno, from Proficio, the rise of these coupons happened recently “is related to the Government anticipating that the update of the baseline scenario (2004) will be a technical decision.”

“I do not think that the officials have considered as an aim to avoid the cancellation,” he adds.

How much do they pay? The coupon pays an amount equal to 5% of the difference between the actual GDP value and the base year GDP.

For the moment, the market reassures the fact that it is highly unlikely that Macri resort to any statistical device to break free of this commitment.

Recent history
The PBI coupons concentrated a large volume of operations until 2013, the year in which they entered the field of distrust, and which began to come out just now.

Its appeal disappeared when Axel Kicillof “altered the statistics back to avoid the annual payment of 2013. The coupons fell 50% the next day and these titles lost credibility,” recalls Di Giorno.

When making the change of year taken as reference to measure the growth, the investors stopped receiving $ 3.5 billion.

In later periods, the Kirchnerism was losing market confidence, imposed the stump and the level of activity began to decline, which was dragging the PBI coupons ostracized.

Then came the change of government, but the bad indicators of 2016 prevented the takeoff. Only recently, with the reaffirmation of several
“green shoots”, this instrument has returned with airs of revenge.

Buy or not to buy
iProfesional consulted several operators of the City on whether they suggest adding them to investment portfolios.

“PBI coupons were the assets we recommended the most in the last few months,” said Pazos, of Puente.

However, he clarifies that “these better expectations already had their correlation in the strong increase of prices”.

If the current price already includes such good prospects, what other factor may lead to additional increases? The answer is almost unanimous: the year that officials finally take as reference.

“Looking forward, betting on coupons means trusting that the government will decide to join the PBI series using the 2012 base, but this is still not certain that it will happen,” Pazos adds.

Vazquez agrees with this assessment: “Until the year is defined that the recalculation will be used and, by virtue of current prices, I would be cautious when buying.”

“The risk is very high, regardless of the growth of 2017. That is why we are advising to close positions taking advantage of the recent rise,” he says.

The other question is whether this caution extends to the different nominations (pesos, dollar, euro) that this instrument has.

“Today we maintain positions in the peso coupon (TVPP), as we believe that a recovery of the economy can be consistent with the inflow of capital we envisage for 2018,” says Di Giorno.

For Vazquez, however, “if the investor chooses to assume the risk tied to the indefinition of the year that will be taken as base, it will be convenient to opt for the nominees in dollars.”

Not everyone is so cautious. There are those who see the glass half full and are convinced that, even if the payment is not triggered, it is still appropriate to add them to the wallets.

Their reasoning is simple: they still pay about $ 30 per coupon in the coming years. If the economy grows sufficiently, the investor could triple his initial investment, since today they are trading in the order of u $ s11.

What are coupons?
They were issued at the end of 2003 and gained strong prominence in 2005, as a result of the exchange, since they were delivered to the holders of debt in default. This issue was added to another issue that took place in 2010.

In practice, they can be grouped according to:

• Date of use: 2005 and 2010
• Currency type: pesos, euros or dollars
• Legislation: national or foreign

By the way they are diagrammed, they are not fixed income instruments (bonds), nor equities (stocks).

Those who buy the coupons or “units linked to the GDP” pay while waiting for them to be revalued and, fundamentally, that the conditions that trigger the payment are fulfilled.

Unlike a traditional bond, which pays an interest rate stipulated in its issue sheets, the gain in this case depends on the growth of the economy.

The requirements were met between 2006 and 2012, except in 2010.

Then, in the period 2013-2016, they did not trigger any cancellation, since the economy grew less than the minimum reference level.