The government of Argentina and its biggest bondholders are clashing over plans to restructure US$ 65 billion in foreign debt, with little sign of either side budging in last-ditch talks to strike a deal.
Three major creditor groups on Monday reiterated their stance that they would reject a tough offer the government made last month. The offer’s deadline is Friday and the government has hardened its position it cannot afford to sweeten the deal.
The negotiations, which have hammered Argentine bonds, will determine whether the country is able to avoid slipping into what would be its ninth default, damaging access to global markets as it struggles to escape from a painful recession.
Argentina’s offer included a three-year halt on payments on the bonds, a 62% reduction in coupon payments and maturities pushed back to 2030 and beyond.
The bondholders, who have previously rebuffed the proposal, said they would not tender their bonds in the current offer. It involves “disproportionate losses that are neither justified or necessary” for creditors, the bondholder committees said in a statement.
In an online seminar, one of the three committees, the Exchange Bondholder Group holding nearly US$ 4 billion of the bonds, also urged investors to reject the current deal.
“Any holder who takes this deal risks being part of a stillborn transaction,” said Pijus Virketis of HBK Investments, adding that Argentina’s government had been “close-handed” with information during the negotiation process.
Argentina’s economy ministry said it was disappointed with the position of creditor groups, but added that “much can change in the course of a week”.
“We are hopeful that our creditors will recognize that, especially in the wake of the COVID-19 crisis, Argentina cannot afford to pay more,” the ministry said in a statement.
“If bondholders have a different approach that would still meet those constraints, they should come forward with a specific proposal. We are always willing to listen and try to find common ground,” the statement said.
Argentine bonds, which are already trading at distressed levels between 20-35 cents, fell an average 3% on Monday.
The standoff is raising the risk Argentina will fall into a sovereign debt default on May 22, when the grace period on a US$ 500 million missed interest payment runs out.
Economy Minister Martin Guzman wrote in an opinion piece in the Financial Times on Sunday that Argentina cannot afford to pay creditors more, especially with the coronavirus now devastating exports and fiscal revenues.
He noted the country had “defaulted on its debt eight times, suffered hyperinflation twice, and gone through multiple balance of payments crises as well as 20 IMF-supported economic programs in 60 years.”
“In the new COVID-19 world, we cannot continue to spend 20% of government revenues or more on debt payments — as some creditors have effectively asked. It is simply impossible,” Guzman said, adding “the time for illusions is over.”
The current offer leaves creditors with an average bond coupon of 2.3%, compared with their 7% average now. Analysts have calculated the net present value - a key metric for creditors - at around 30-35 cents on the dollar.
One of the three main bondholder groups currently formed includes AllianceBernstein, Amundi, Ashmore, BlackRock, BlueBay, Fidelity and T. Rowe Price.
Another, the Argentina Creditor Committee, includes distressed debt specialist Greylock Capital, as well as mutual funds, family offices, insurance firms and asset managers. The Exchange Bondholder Group has hedge funds HBK, Monarch Alternative Capital and Pharo Management among its members.