Argentina casts a wide net for cash

Argentina's thirst for dollars has been temporarily quenched by a $1.4bn bond sale, but a state visit to Russia this week is unlikely to yield significant support for its languishing economy.

Hindered from issuing debt in international capital markets by a long-running dispute with a group of holdout hedge funds, Argentina succeeded in issuing dollar-denominated debt under local law on Tuesday to bolster precariously low foreign exchange reserves.

Having struggled to raise funds since defaulting on its debt last year, the initial $500m offer was almost three times oversubscribed, mostly by foreign investors whose optimism that Argentina's struggling economy will rebound under a new administration next year has fuelled a sustained rally in bond prices.

Argentina has been forced to seek innovative ways to prop up its dollar-starved economy, turning to countries such as China and Russia to make up for its exclusion from traditional sources of funding and investment since its economic collapse in 2001.

But President Cristina Fernandez's trip to Russia this week to advance a budding relationship and follow up on trade and energy deals signed last year is unlikely to lead to concrete economic support before she steps down in December.

Although Russian officials told journalists on Wednesday that they would invest about $2bn to build a hydroelectric plant in Argentina, a potentially important energy deal expected to be signed between Russia's Gazprom and Argentina's YPF to develop some of the world's largest shale reserves in Patagonia will lack concrete commitments.

Instead, Argentina's burgeoning relationship with Russia has led to speculation that it will lease 12 Soviet-era long-range bombers in exchange for beef and grain to alleviate the effect of economic sanctions. This has provoked concerns in the UK government that Buenos Aires poses a "very live threat" to the disputed Falkland Islands, prompting it to ramp up spending to reinforce defences.

As well as Russia, Argentina has turned to China for economic support, which has been more forthcoming. Last month, Argentina activated a new instalment worth $1.5bn of an $11bn currency swap agreement with China, according to local business paper, El Cronista.

In a note to clients this week, Marcos Buscaglia, an economist at Bank of America Merrill Lynch, said that "significant balance sheet deterioration in 2015" at the central bank is "well under way" and happening "faster than expected", warning of pressure on Argentina's overvalued currency as October presidential elections come closer.

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"We are closely scrutinising this highly unusual transaction to determine what enforcement actions are appropriate," said Robert Cohen, attorney for NML Capital, which is expected to seek to bring the new bonds under the US court ruling they won in 2012 that prevents Argentina's bondholders from receiving payment without the holdouts being paid in full.

After Argentina aborted a $2bn bond issue backed by JPMorgan and Deutsche Bank in February because of legal complications, this time the bonds were sold directly to investors without using banks as intermediaries. Economy minister Axel Kicillof told state news agency Telam in Moscow that the holdouts "weren't able to scare off investors with their threats".

In a blog post on Sunday entitled "Everything has to do with everything (when it comes to geopolitics and international power)", Ms Fernandez suggested that the holdouts had backed Alberto Nisman, the state prosecutor who died mysteriously in January days after accusing the president of covering up Iran's alleged involvement in Argentina's worst ever terrorist bombing 20 years ago. The case against Ms Fernandez has been dropped.

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