Franklin Templeton buys $2.25bn in Argentine bonds
Franklin Templeton’s Michael Hasenstab came to Argentina’s aid this week, lending Buenos Aires more than $2.25bn in a discrete cash infusion reminiscent of the bond fund manager’s support for Ireland in the wake of the eurozone crisis.
Funds controlled by Mr Hasenstab, including the flagship $38bn Templeton Global Bond Fund, snapped up more than three-quarters of the 73bn pesos ($3bn) in “Bote” bonds sold by Argentina on Tuesday, according to people familiar with the matter.
The Argentine government only “reopened” the Bote bonds maturing in five and eight years for a sale after being approached by Franklin Templeton, according to a person close to the deal.
The San Mateo-based asset manager already owned about half of the two bonds, and the purchases would likely make Franklin Templeton Argentina’s single biggest creditor, according to fund filings. Argentina had recently found itself on the ropes, with a change to its inflation target and a central bank rate cut earlier this year denting confidence in the reformist government led by President Mauricio Macri. That has sent the country’s currency tumbling to a record low against the dollar.
Last week the government approached the International Monetary Fund for a rescue package. The $3bn Bote sale arranged by Franklin Templeton represents a vote of confidence in Argentina while the country works towards an agreement with the IMF. “You can’t get a bigger sign of confidence from markets when you place a bond in pesos at a fixed-rate on one of the worst days in emerging markets this year,” Luis Caputo, Argentina’s finance minister, said on Tuesday, according to Bloomberg. “It is a sign of confidence in President Macri, and the policies he is putting in place.”
Mr Hasenstab, the chief investment officer of Franklin Templeton’s global macro team, has earned a reputation for placing big bets on countries in economic and financial distress, such as Hungary in the wake of the financial crisis, Ireland at the depths of the eurozone crisis, and Ukraine around the time of its revolution.
“Michael Hasenstab is known for making big investments in countries in trouble,” said Bartosz Pawlowski, chief investment officer at mBank Private Banking in Poland, and former head of emerging markets strategy at BNP Paribas.
“This high concentration strategy is a feature of his approach, but of course it requires excellent grasp of not only the macroeconomic situation but also the political decisions being taken by authorities.” While Franklin Templeton declined to comment on the Bote sale, Mr Hasenstab said in a statement: “The current government continues to demonstrate incredible resolve and skill in giving life back to an economy that had all but collapsed.” He added: “Over the last months some policy errors did occur, as is common in any reform effort as large as is currently being undertaken. Importantly, errors were recognised and reversed and we remain confident the right policies are in place to improve the economy, (the) welfare of Argentines and the markets.”
Franklin Templeton funds owned $4.2bn of Argentine debt at the end of the first quarter, according to regulatory filings, and Tuesday’s purchases would catapult it beyond Pimco’s $5.2bn exposure to become Argentina’s single-biggest bondholder.
Mr Hasenstab rose to prominence in the wake of his mammoth but astute lucrative bets on Ireland’s turnround, swelling the size of his flagship fund to a peak of $73bn in 2014. Yet he has stumbled in recent years after turning prematurely bearish on developed bond markets. This year’s emerging markets wobble has also hurt many of the fund’s biggest positions, such as Mexico, Brazil and Argentina.
The peso rallied on Wednesday after a critical central bank auction of $25bn of its local currency notes, known as Lebacs, on Tuesday.
The successful auction was widely seen as a turning point for the embattled peso. After capital flight had destroyed around a fifth of the peso’s value in the last three weeks, confidence in the central bank’s ability to manage the situation appeared to return.
“It’s by no means the end of the war, but an important battle has been won,” said Paul McNamara, a fund manager at GAM.
“They’ve bought themselves a lot of breathing room on financing and managed to pull together something that looks — in bad light — a bit like a coherent plan.” Mr Macri’s economic team will now press ahead with negotiations for a loan from the IMF of as much as $30bn, with the fund’s board due to meet on Friday to assess progress. Meanwhile, Mr Macri faces pressure from congress to reverse utility tariff hikes, a major part of his drive to reduce the fiscal deficit — which the IMF will probably require to be accelerated.