Argentina Inc. faces more pain

Riots forced most Argentine businesses to shut

Global corporations with interests in Argentina should weather the current storm, but local businesses face a highly uncertain future, according to ratings analysts.

Ratings agency Standard & Poor's on Friday said it has no plans to downgrade the creditworthiness of the major global banks with heavy Argentine exposure, including Spain's Banco Santander and Banco Bilbao Vizcaya.

Citigroup and FleetBoston of the US are also off the hook, as is Italy's Banca Nazionale Lavoro, the company said.

"So far, as much as we've evaluated what the losses might be, they will have no ratings impact," said S&P analyst Tanya Azarchs. "We think those losses would be manageable."

Exposure limited

The two Spanish banks, which each have Argentine interests and liabilities worth about 1.5bn euros, had been singled out as possible casualties of Latin America's latest meltdown.

The Argentine government's actions have breached...the spirit of market based reforms, and have shaken international investors' confidence for investments in Argentina

Ratings agency Fitch

Other US banks, including JP Morgan Chase and Bank of America, also have major Argentine holdings, but these form too low a proportion of their total assets to do any serious damage, S&P said.

However, the agency warned that it would take a fresh look at the banks' exposure in the event of a further deterioration in the Argentine economy.

Positive signs

More encouraging news came on Friday from rival ratings agency Fitch, which published a mostly positive review of Spanish telecommunications giant Telefonica.

Telefonica, a major player in the Argentine telecoms market, has also been identified as a possible high-profile victim of the crisis.

Argentine utility groups, including telecoms firms, face the double whammy of government-imposed price caps while being forced to repay dollar debts in heavily devalued pesos.

Until the onset of the current crisis, Argentine utility charges were index-linked by law to US inflation rates and levied in dollar-linked pesos.

But Fitch on Friday said that while Telefonica's Latin American earnings will suffer, the company's "proven track record of prudently managing its exposure" has limited the potential fallout of Argentina's crisis.

Meanwhile, French retail giant Carrefour, which owns nearly 400 stores in the troubled Latin American republic, gave itself the all-clear on Friday.

The company said that damage to its Argentine interests, which were forced to shut down for three days during last month's riots, will be contained thanks to careful hedging.

Earlier this week, Carrefour's Dutch competitor Ahold said it is taking a 100m euro charge to cover losses to its Argentine business, unnerving its shareholders.

There were signs also on Friday that the worst may be over for the Spanish corporate sector, which includes most of Argentina's largest foreign investors.

Spain's Ibex index of leading shares, which has fallen by 6% since the onset of the Argentine crisis on 3 December, shrugged off a sharp fall in the value of the peso as Argentina's foreign exchange markets reopened after a three-week suspension to edge slightly higher.

Trouble at home

But Argentina's own businesses are unlikely to get off so lightly.

In a separate report, Fitch said that any gains to Argentine exporters from a weaker peso will be offset by their reduced ability to attract much-needed foreign investment.

"Many of these companies require significant investment in production technologies and processes necessary to compete on the international markets," the company said.

The ratings agency added that Argentina's corporate financing problems have been exacerbated by the government's policy of placating popular unrest by intervening in the markets.

"The Argentine government's actions have breached...the spirit of market based reforms, and have shaken international investors' confidence for investments in Argentina," Fitch said.