IRSA Inversiones y Representaciones Sociedad Anónima (IRSA) Earnings Call Transcript & Summary

Welcome, everybody. Thank you for joining us today in this webinar regarding the exchange offers that we launched for IRSA and for Cresud November notes under the resolution "A" 7106 of the Central Bank of Argentina. We are going to give a quick presentation on the terms and conditions of the offering. And then some slides on the financial situation. Matias Ivan Gaivironsky, our CFO, here we have, we'll give the presentation. Then after that, we are going to open for Q&AS. You can do it in Spanish or in English. We're going to give the presentation in English because we have some international investors. [Operator Instructions] So thank you, and I give the word for Matias.

Thank you, Santiago, and good morning, everybody. So we think that this is a good opportunity to present what we are doing. This is a special situation for us. There was a new regulation of the Central Bank that forced us to refinance part of our debt. You know that our strategy since the beginning of the year was to raise liquidity in order to pay all our debt. This was a very challenging year in terms of amortizations. In the context of Argentina, almost isolated to the world, so the market was closed for Argentina. And in the middle of -- the beginning of the year of the negotiation of the starting debt and now with the current situation that Argentina has no access to the international market. In this context, we decided this year to put all our efforts in increasing liquidity, and I will show later what we did during the year. And now we have this new situation that the Central Bank established a new regulation that forced the companies that has amortizations during November or October and March. Basically, they are saying that they won't sell more than 40% of the dollars that expired during that period. And the companies has to refinance the rest. So under that circumstances, we have, both in IRSA and Cresud, 2 notes that expire in the coming days. This regulation came in the middle of our -- the process. Now we -- in the case of Cresud, we did all the issuance and prepare ourselves to serve our debt, and we have the money in cash in pesos to pay. And this regulation came. So now we are not able to pay under the original terms, no. So we -- and under this context, we try to present an offer that we hope will be attractive to everybody. We need to achieve here basically 100% acceptance because the company won't be able to buy more dollars than the central bank is giving. So for that reason, we tried to put on the table something attractive. So I will describe what we are offering to our existing noteholders. In the case of IRSA, the amortization is for a $181.5 million notes at a 10% coupon that expired now in November. So for every dollar of notes -- of existing notes, the holders will have the option to choose, or option A or option B, so for each dollar, the holder will receive the accrued interest until the settlement day. And if they choose the alternative A, they will receive at least 50% in cash. Remember that the Central Bank allowed us to pay 40%, but in this structure that -- and I will explain option B. But in this context, everybody that will choose option B, in some way, will give us more space to pay more in the option A. So the holders will receive 50% in cash and the rest will be a new issuance of a new note with amortizations of principal during the next 3 years, 33% per year. And the interest rate will be exactly the same than the existing notes, will be 10% fixed and with payments on a quarterly basis. The payment address of the series VIII or the option A is Buenos Aires. And those are the terms of the option B. In the case of option B will be the same coupon, 10%. The amortization will be bullet in 27 months in March 2023. And the payment location will be New York. So this is an enhancement of the structure. People that will choose option B will receive payments abroad Argentina. In option B, it's in dollars. But in Argentina, what we call dollar MEP and in the option B will be dollar cable. The other subpayment will be [indiscernible] in New York, but in dollar cable that for certain people or in terms of the economic value of that today has more value than the dollars MEP. And we are also including in the option B an early bird that expired this Friday, October 30. The early bird will give 2% of the original amount in pesos. So we will pay the 2%, but the payment will be in pesos because the Central Bank -- it's impossible to buy more dollars than that 40%, but we wanted to put a premium also on the early bird on the option B. The option A hasn't that premium. And also, in the option B, we will give the alternatives to subscribe in dollars. In the option A, only is with existing notes. In the option B, we are also doing a new issuance with new money that we can use that money in order to enhance also the option A if we have interest in that series. So to summarize, part of the -- or summarize the different scenarios that we can have here. The scenario #1 is our base case scenario. That we already receive intentions of 20% of the people that will choose option B. And that means that the option A will receive the $72.6 million in cash that is 50% of the option B -- sorry, 50% of the option A and $72.6 million will be in the new series of bonds. And remember that $72.6 million is exactly 40% and of the original amount that expired, that is $181.5 million by 40% is that $72.6 million. Let's say that we have in the scenario 2 people that came 50% with option B and 50% with option A. So the people that choose option A will receive 80% in cash, the same $72.6 million but divided by all the people that choose option A, plus $18.2 million in new notes. And in the typical scenario that everybody came to the option B, people will receive 100% cash in the option A and $108.9 million in option B. Next slide is the same for Cresud. The structure is exactly the same. The amounts are different. The notes that expire in the case of Cresud is a note with a principal of $73.6 million with a coupon of 9% that is the only difference in the structure. So we are maintaining the same coupon of 9% for option A and option B in the case of Cresud. The scenarios, you can see here are the same. So the amount that the Central Bank will sell us is $29.4 million. We are using all that part in the option A. So that is the amount that the Central Bank will sell us. In terms of the time line here, this is a very short notice exchange because we don't have more time. Unfortunately, the regulation came very close to to the amortization. So we don't have more time to keep this open. So we will have the early bird next Friday, October 30. Then the closure of Exchange will be November 5, that is the next Thursday; and the settlement, approximately November 11. We have here a lot of book runners or placed the nations that are helping us in the -- with this exchange. So we have like 10. You can contact any of them in order to receive more information or also directly to us with Santiago and the rest of the team. We have the line open if you want or need more information. So how our structure will look after this exchange offer. Here, we are assuming that we are successful in the exchange. So you can see on the top part, the existing amortization schedule, in the pro-forma scenario, depend on which one in 1, 2 or 3. You can see that the payments for the coming years will be less concentrated like this year. This year, almost all the debt on IRSA expired this year. So after the issuance that we did during the year and this refinancing, we can extend better the terms of our coming debt. And in the case of Cresud is similar. You can see on the bottom part, the yellow part that is the existing notes. We already have the cash to pay. So for the future, we will have that cash. We can cancel bank debt or the other notes that will expire. So we would use the cash that we are not using to pay to cancel the rest of the -- part of the debt. Here is a summary on what we did during the year, and we are proud on this very challenging year on the performance of what we did so far. We were able to increase liquidity for the group in this challenging scenario for $425.9 million, using different -- with different transactions. We sold assets. In the case of Cresud, we sold 6% of our stake in Brasilagro. We sold offices at the level of IRSA commercial properties for $145 million. And also, we tapped the market with new issuance for more than $250 million. With that money, we can sell that for $250 million. So so far, we were very active in our financial structure in order to improve the liquidity and be able to pay all the debt that expire so far. So I think this was a very short presentation. The idea is to open the channel to see if any of you has questions. So we open the line. Santi, you can handle...

Yes.

You can read the presentation. [Operator Instructions]

The first one from [ Santiago Garcia Segura ], if we can exchange in Euroclear?

Yes, yes. This is already working since today. So yes, today, you can put the orders under Euroclear as well.

The second one, if we could clarify if the cash payment under the option B, around 2% is extra cash payment or it is a repayment?

It's an extra cash. So it's a premium. That is a premium to came early in the process. So it's a 2% additional. So for every note that you will present, you will receive the early bird, 2%; the accrued interest, that is 2.5%; plus a note for 100% of principle, sorry, in the new notes. But it's additional.

What happens if there are holdouts on the offers?

We hope not to have holdouts. We know that it's very challenging because we have a very atomized investor base. But here, the challenge that we have is that the Central Bank is not giving us more tools on what we already described. That means that the day of the payment, the Central Bank will sell us only 40% of the original amount. And the rest, let's say, that the company wants to pay and do, for instance, contado con liqui, we are not able because we have access to why dollar -- the exchange -- the official exchange rate. And one of the conditions of the Central Bank to sell you dollars through the [ mulk ] is that you don't do transactions in the contado con liqui in the previous 90 days and in the following 90 days. So it's not legal for us to do it. So for that reason, we hope that everybody will accept and understand this situation. But under the current scenario on the current regulation, we don't have any tool to pay. The only thing that could happen is that if we receive new money in the -- for the issuance of the series B, we can use that money or to enhance the option A or if there is any holdout. But we don't have any certainty that we will receive new money. So I can't commit anything on that regards.

Next one...

I'm sorry. And in terms of the regulation, we don't know what will happen. If we have holdouts, really, we don't know what will happen with that and how will be the procedure. Of course, the company won't fulfill its obligation under the original terms and conditions, so the company, of course, will be affected for that situation. But we don't have any kind of color or information on what will happen after that, according to the Central Bank rules.

Next question, do you think Central Bank's regulation could extend beyond March 31?

I prefer not to comment on the future of regulation because I don't have any color on that. Argentina was and is a little unpredictable. So I'm not -- I think I am not the right person to answer that question. Maybe the Central Bank has to answer.

When and how will be paid the 2% for the early bird?

In the settlement, so the settlement day that will be around November 11, we will pay the accrued interest, the early bird and give them new notes.

I'll answer the next question. That is a translation. We have all this information available in our website, www.irsa.com.ar and cresud.com.ar, the summary of the offering in both languages in Spanish and in English.

Remember that the original notes were issued at Argentine law, so the 2 notes are under Argentinian law. So there is no prospectus in English here. But you have the subscription notice in English in our website, but the prospectus is not availability in English because it's under Argentine law.

I think the next question was already answered. How can I give my answer for option A or B, especially for the early bird option? What happens if I don't choose any option?

If you don't choose any option, you will be a holdout, so the only -- the exchange is only for option A or option B. So that's...

Good. The Central Bank's rule is a blanket rule that applies to all companies equality based on your discussions on shore, how much flexibility do you think the Central Bank will allow for specific circumstances? Surely, we hope they don't want your default. Number two, did you say you already have an indication of Option B for 20% of the holders?

Yes, yes. We already have -- and we are having good reception of option B, better than what we expected original. There are people that is evaluating option B, a better NPV than option A, because of the gap between the dollar MEP and dollar cable. So that is one of answering the first part of the question. And this is something that we ask together with other issuers to the Central Bank to allow us to pay abroad. You know that the cost for the company is the same because, for me, the company -- the cost of the debt is at the official exchange rate, but there is a difference between if we deposit the money here or if we deposit the money abroad. The Central Bank understood the request and allow us to put the address of payment abroad only for the exchange. So if -- for the cash payment that we will do under the option A, the payment will be in dollar MEP here in Argentina. But for the new option B, the future payments will be abroad. I think that was -- the discussion with the Central Bank was friendly. Of course, there is a regulation that we need to fulfill. They will try -- they have been trying to help issuers in order to be successful in this exchange offer. Of course, I don't imagine that anybody wants a default of any company in Argentina. So the Central Bank is helping with that. But understanding that it's a special situation of the Central Bank reserves. And unfortunately, the Central Bank is trying to protect those small reserves that they have, and they are trying to defer payments to have time to recover on the reserves. So so that, I think, was the main -- or the reason of this regulation that was the first time that I remember that the Central Bank put this kind of limitations to serve debt on any corporation.

Next question, if 100% of holders choose option B, the pro rata that will go to option A necessarily will be paid in cash or new holders might receive option A bonds.

No. The -- in that hypothetical situation, there is some maximum size for option B. So here, the structure is that the amount of the total amount of the notes is $181 million. So $72 million, the Central Bank allow us to pay and to buy. So that we put it as a fix. And the rest, the remaining $108 million, this will be divided between option A and option B. So if everybody decided to come to option B, that means that we will receive in the case of IRSA, $181 million for the option B and 0 for option A. In that case, we will do a pro rata, and we will give cash instead of 100% of bonds of bond B. This is very hypothetical. We have started to receive exchange yesterday and the day before, and I can tell you that we already have people that came from option A. I believe that -- or we try to put here on the table something that we understood that there are certain people that prefer the money now and certain people that are very comfortable with the credit, and they don't care to extend the tenor for 2 more years. So we try to put something on the table that maximize the 2 needs of our investors. So we understand that there are certain people that want the money now, and that is the idea to create this incentive between option A and option B.

Good. When do you expect the option with the subscription of new money in dollars?

We are defining that. It's not defined yet but will be close to expiration of the exchange. So I think it'll be on the 4th of November, 5 or 6, something like that. We will decide probably next week. Also, we need to let the market know in advance for 3 days. So on Monday or Tuesday, the next week, we will announce.

Is it fair to understand that the option be more covered or hedged to a specification event?

Well, our obligation of payment will be abroad. So that will be the terms of conditions of the new note. But I've never seen -- maybe we need a lawyer to address this because it's a very legal question. I don't know how a new regulation can affect terms and conditions of existing notes. This restructuring is not affecting the terms and conditions of the existing notes. We are doing a voluntary exchange offer to change for a new note. So depending on the new regulation, maybe it's better that a lawyer address that question.

Is there a possibility that who chooses for option A, collects 100% in cash?

It's very hypothetic. I don't think that they will receive 100% because we will need to have almost everybody to come to option B. But my guess is that they will receive something between 50% to 60% or 70% in cash.

That's all the questions. I don't know if there is any additional question. But we are open, the investor relations team. We are open for all the questions you may have. We hope you join and keep trusting in the company. And this is all. I don't know, Matias, if you have anything else.

No, no. Thank you very much to participate. The idea is to reach everybody that has the bonds and also our investors for the rest of our debt to explain what we are doing. As I mentioned, this is special because it's not generated by the company. We need to fulfill here a regulation. But we are trying to do our best. So thank you very much, and keep in contact. Thank you.

Bye.