Great opportunities for business financing in the Argentine market

With the new economic policies implemented by the government of Javier Milei, a large amount of investment is expected in various industries, especially those related to Oil and Gas, Electricity Generation and Transmission, Mining and Agriculture. These levels of investment will require companies to obtain financing to carry them forward. Looking at the last year, there is no doubt that a significant portion of that funding will come from the capital market. According to CNV data (National Securities Commission), cumulative corporate funding as of December 2024 reached US$ 23,932 million, an all-time record that more than doubled what was set in 2023. The amount for the year 2024 also exceeded the previous record high reached in 2018 by 20%. The increase in trading in the secondary market was even more significant. At the beginning of 2024, nearly $28 million were being traded in Argentine stocks. By November, that value was already at $90 million per day; and by December, nearly $150 million per day. In other words, the volume traded increased fivefold. Something similar happened in negotiable bonds, where the amount traded daily went from an average of USD 262 million at the beginning of 2024, to USD 550 million per day in December. In other words, measured in dollars, it doubled in less than a year. These increases are explained by a greater number of investors interested in the shares and debt of Argentine companies than in November 2024, as evidenced by the number of accounts opened in Caja de Valores - the local depositary holding securities of Grupo BYMA - which amounted to 15 million, representing a 101 percent increase compared to the same month in 2023. We highlight the increase in local volume, since it has been proven that, the higher the volume of trading, the value of the company is maximized. And with a higher trading volume, spreads (the difference between the prices of buy and sell offers) tend to decrease. This lowers the entry and exit costs of investors, which makes it more attractive to invest and therefore improves market valuation. There are academic studies embodied in papers that prove this.

Financing through the Capital Market has advantages

Financing through the market differs from bank financing: it requires that the company be prepared to provide, on a regular basis, accounting and other information that is mandatory and necessary for investors, thus complying with regulatory requirements. At this point, it is worth noting that in the local context, the current management of CNV drives its simplification. But let's look at its advantages. First, it diversifies the origin of the capital structure. Every good financial manager knows the risk involved in concentrating funding sources; since dependence on a single source can, in extreme cases, compromise the future of the company. Second, there are advantages inherent to capital market instruments; for example, in the case of Negotiable Obligations (debt) they are more tax efficient for the company. In the case of shares, the great advantage is that partners are incorporated, so, since it is not debt, this integrated capital does not need to be returned, unlike in the case of issuance of bonds. In addition to these advantages, financing in the capital market has a positive impact on the strategic positioning and reputation of companies. The capital market implies greater transparency and a commitment to better corporate practices, elements that not only strengthen the relationship with investors, but also with other key stakeholders.

So what are the differences between being financed locally or internationally?

The answer is simple: an Argentine issue is always appropriate, then you have to see if an international portion is added. An issue in Argentina has many advantages. In the first instance, it is much more tax efficient - and not only for the issuer, but also for the investor, so local demand will prefer it. In addition, it is clear that an Argentine issuer will be better known locally than in global markets, so, to begin with, the local level is preferable; and again this adds strength to the demand for the issue, and what is inversely proportional, the cost of financing. The local level has other advantages, such as different currencies of issue: pesos, UVA, local dollar, or dollar in NY (the so-called CCL); on the other hand, a global issue can only be in the latter currency - or in some other of those used globally. Another advantage is that there are more instruments - especially aimed at smaller companies - that can issue instruments guaranteed by SGRs (Mutual Guarantee Firms) that also contribute to lower the cost of financing. Of course, an international issue can have a much larger dimension. But that possibility of taking a lot of money at once is not always convenient. In addition, it is also true that taking financing in another jurisdiction involves higher costs, and taking risks that arise from having to comply with two regulatory bases that are not the same, which means that international financing only makes sense when the amounts of taking new money are very high, a matter of being able to dilute those fixed costs.

What can we expect by 2025?

Taking into account the experience of 2024 and the comments in this article, we can conclude as a general rule that the local market is able to satisfy financing with debt issues of up to USD 500 million, to consider domestic issues with the international aggregate when society seeks funds for larger amounts. In the case of listing its shares, that figure increases to USD 1 billion in market capitalization. If current economic policies are maintained, the macroeconomic context could favor an increase in the different variables of the capital market. This would create an even more dynamic environment, with better alternatives for financing growth, thus consolidating the strategic role of the local market as an engine of business development in the country.