Argentina said it won’t make a local bond payment on time after failing to refinance the debt, declaring it won’t be “held hostage” by foreign investors demanding their money back. The maturity date for the note will be delayed to Sept. 30 from the original Feb. 13, the Economy Ministry said in a statement.
The move comes after a local debt sale flopped and only a few investors agreed to participate in a debt swap that would have bought the country extra time to come up with the cash.
The delay reflects Argentina’s dire financial situation after a currency crisis sent the economy into a recession, and the standoff with creditors in the local market is seen by some as a potential prelude to the much-bigger restructuring ahead for the country’s overseas debts. Federal officials have said they’re seeking to finalize restructuring talks with holders of billions of dollars worth of foreign debt by March 31.
“This decision, coupled with the fairly aggressive language in the official press release, suggests a hard negotiation with bondholders in the coming weeks and months,” said Fernando Losada, the head of emerging markets research at Oppenheimer & Co.
In the past, the government had unilaterally delayed debt payments on local dollar notes, but until now had been rolling over its peso securities.
The delay affects 88 billion pesos (US$ 1.4 billion) of bonds, though it won’t be imposed on retail holders of the notes who bought them before Dec. 20. About 80% of the securities are held by foreign investors, Finance Secretary Diego Bastourre said last month.
The so-called dual bonds pay investors in the local currency, but returns are calculated in such a way as to protect investors from major declines in the peso. Holders can choose to get paid back the peso-denominated principal plus interest in pesos, or at the nominal value converted to dollars at the official exchange rate with interest calculated in dollars. Since this bond was issued, the dollar return was higher, given that the Argentine peso weakened 55% over that period.
Following the failure of the swap auction -- only 10% of holders bought into it, with analysts estimating net present value losses of as much as 37% -- the government had sought to sell local floating-rate and dollar-linked notes on Monday.
The government declared the auction void, without providing an explanation. President Alberto Fernandez had said Feb. 6 his government won’t print money to pay debt, limiting options.
In the statement on Tuesday, the government said foreign investors hadn’t supported the swap because they would only accept short-term dollar-linked options. Officials deemed that “incompatible” with their strategy to return to debt sustainability.
“This government is not going to accept that Argentine society be held hostage by international financial markets, nor will it allow the speculation over the well-being of its people,” the statement read.
Economy Minister Martin Guzman is scheduled to address Congress on Wednesday to present an analysis of Argentina’s debt sustainability.