FILE PHOTO: A girl wearing a protective face mask walks along the Villa 31 slum, as the spread of the coronavirus disease (COVID-19) continues, in Buenos Aires, Argentina May 6, 2020. REUTERS/Agustin Marcarian
May 11, 2020
By Adam Jourdan, Marc Jones and Rodrigo Campos
BUENOS AIRES/LONDON/NEW YORK (Reuters) – Argentina will extend negotiations over a $65 billion debt restructuring proposal until May 22, the government said on Monday, setting the stage for tense last-ditch talks as the South American nation races to avoid default.
The new deadline, which comes after an initial cut-off passed on Friday without the support needed for a comprehensive deal, means the offer will expire the same day Argentina could trigger default over a $500 million interest payment.
The major grains producer is racing to revamp unsustainable debts amid a painful recession, high inflation and increasingly expensive borrowing costs as concerns over a potential ninth sovereign default have rattled investors and hit bond prices.
The talks so far have been complex, with three major creditor groups rejecting the initial proposal and pushing for improved terms. Argentine officials have said the country cannot afford to pay more, though they are open to counterproposals.
“Clearly, both sides are playing hardball,” Capital Economics said in a note on Monday, adding that the talks were likely to drag on and that creditors could face large haircuts, especially with the global coronavirus pandemic sapping growth.
“The government is facing ever-growing demands on its purse as the health crisis continues,” it said. “Accordingly, recovery rates for foreign bondholders of around 30% are looking increasingly likely.”
Analysts calculate that the current offer, which includes a three-year payment halt, a large cut to coupon payments and maturities pushed back to 2030 and beyond amounts to a net present value of around 30-35%.
Bondholders say this needs to be raised to gain support.
DISTRESSED LEVELS
Argentina’s Economy Ministry said in the official gazette that it had extended the deadline to “increase participation” after taking stock of the current offer. The government has not said what exact level of support that offer garnered.
“While many of our bondholders supported Argentina’s invitation, other significant groups of creditors did not,” the ministry said in a statement, adding that the government remained open to discussing the way forward.
“Among those that rejected Argentina’s offer, several have indicated that there are better alternatives that can be reconciled with the objectives that this administration has set for itself and for the Argentine people.”
The invitation closes on May 22 at 5 p.m. New York time (2100 GMT). The results of the offer will be announced around May 25 with a settlement date of May 27.
The bonds in question include collective action clauses, which means the government needs to meet a threshold of investor support in order to move ahead with comprehensive restructuring.
Argentina’s bonds, which have fallen steeply since the middle of last year, are already trading at distressed levels, with most around 25-30 cents on the dollar. The country’s bonds have edged up in recent days and rose 1.2% on average on Monday.
LEVEL OF ACCEPTANCE
Goldman Sachs said in a note that without a deal, it was likely Argentina would default on May 22, though it did not rule out payment if a deal looked close at hand. The investment bank noted the signs were that participation had been low.
“The absence of specific official information suggests that the initial acceptance rate may have been quite low,” it said.
Two international bondholders involved in the talks said the level of acceptance was just over 12%. Argentine media reported that local holders of the debt had been more receptive, which they said brought the total level to around 20%.
Argentina’s economy ministry and minister Martin Guzman declined to comment on the level of acceptance.
The country’s largest province, Buenos Aires, is facing a separate debt crisis of its own, with an offer to holders of its foreign law bonds to restructure around $7 billion in debt due to expire later on Monday.
A major creditor group has already rejected the proposal from the province, which also faces bond repayments on Monday, which if missed could trigger a local government default.
Siobhan Morden at Amherst Pierpont said the Buenos Aires talks could give a clue to how national negotiations would go.
“The firm deadline for today in the Province of Buenos Aires will provide a leading indicator for the sovereign since the two credits are aligned on their political strategy,” she said.
(Graphic: Argentine bonds’ wild ride link: https://fingfx.thomsonreuters.com/gfx/mkt/jznpnenjmvl/ArgentinaBonds.png)
(Reporting by Adam Jourdan; Additional reporting by Hugh Bronstein and Eliana Raszewski in Buenos Aires, Rodrigo Campos in New York and Marc Jones in London; Editing by Toby Chopra, Chizu Nomiyama, Dan Grebler and Cynthia Osterman)
