Argentine sovereign and provincial bonds dipped on Wednesday as the provincial government in Buenos Aires was forced to extend a deadline for creditors to agree or reject a plan to delay a US$ 250 million bond repayment originally due on Jan. 26.
The province said on Wednesday, minutes after the consent solicitation deadline had elapsed at 1pm (1600 GMT), that it would extend the cut-off for responses related to a 2021 bond until the same time on Jan. 31.
The province needs to receive consent from holders of over 75% of the principal amount of debt.
“To date we have received the support of a significant number of bondholders, and we continue in dialogue with institutional investors whose participation would allow us to arrive at the desired result,” Pablo Lopez, the province minister of treasury and finance, said in a statement.
The payment on the 2021 bond marks the first major test for Argentina as it grapples with far more complex talks to restructure about US$ 100 billion in public debts that the new Peronist government says it cannot currently pay.
Ilya Gofshteyn, a senior emerging markets strategist at Standard Chartered Bank, said that if Buenos Aires could not get sufficient bondholder support, it likely reflected the “difficulties facing the sovereign restructuring discussions.”
The provincial government said the terms of the bond gave it a grace period of 10 days for capital payments and 30 days for interest payments without triggering a default.
Buenos Aires province, Argentina’s largest and wealthiest by far, said this month it was seeking “temporary financial relief” from holders of the 2021 bond, and requested an extension to May 1 to make the repayment due this month.
Without consent, the province - and the national government - will be in something of a bind, analysts said.
“The alternatives are to either reach 75% agreement for consent solicitation to postpone the payment to May 1 or otherwise risk a hard default,” Amherst Pierpont said in a note on Wednesday, adding the question would be whether the state would intervene at the last minute.
“It’s a game of brinkmanship on whether either side caves in to avoid a hard default next week.”
Prices for Argentina’s over-the-counter (OTC) bonds were down on average around 1.3%, while Buenos Aires province bonds fell across the board, led by a 3.5 point drop in the 2021 bond.
Argentina’s center-left President Alberto Fernandez has said Argentina needs to be given time by creditors, including the IMF, to revive growth in order to be able to do so.
However the last Finance minister of the previous administration of president Mauricio Macri, Hernan Lacunza, who before that was head of the Buenos Aires province finances said the provincial treasury has more than sufficient funds to honor the US$ 250 million bond payment.
Although this most probably is true, the statement follows on comments from the new provincial governor, Axel Kicillof, a protégé of vice-president Cristina Fernandez, who claims he received a scorched earth province, with hardly any funds to pay salaries and other expenses, while at the same time having the provincial legislative approve a budget with a raft of taxes punishing the middle class, pensioners and farmers from the rich pampas.
Lacunza recalls that the province of Buenos Aires in 2015 recovered its credit ratings under governor Maria Eugenia Vidal, from Macri's party, and fresh funds or the renewal of pending credits depends on creditors confidence on the policies or promised polices of the new authorities in the Buenos Aires province.
In reality Bond Buenos Aires 2021, which Kicillof should honor on 26 January and pretends to extend until May, was issued the last governor of the province Daniel Scioli, a trusted ally of Cristina Fernandez administration.
The capital value of the controversial bond is US$ 750 million to be repaid in three installments, the first in 2019, which was done by Lacunza, with the other two in 2020 and 2021. The interest rate accepted by the Scioli/Cristina Fernandez administrations at the time was a double figure.