MercoPress, en Español

Montevideo, January 28th 2023 - 11:09 UTC

 

 

Argentina and bondholders agree “much can change in the course of a week”

Wednesday, May 6th 2020 - 09:55 UTC
Full article 3 comments
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. 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.
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”. 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”.

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.

Categories: Economy, Politics, Argentina.

Top Comments

Disclaimer & comment rules
  • Jo Bloggs

    Tick, tock, tick, tock...

    May 06th, 2020 - 11:36 am +1
  • bushpilot

    Argentina should just default.

    Then maybe, just maybe, and finally, no one in the world will invest their money with the Argentine government anymore.

    No one should have invested any money with the Argentine government after they called people who wanted their agreements honored, “immoral vultures”.

    I don't have much sympathy for people who put a nickel in the Argentine government after seeing what a dishonorable witch CFK was.

    And, if the world will finally stop investing in the Argentine government, they will be forced to no longer borrow money, which they shouldn't, and they will be forced to no longer sell bonds. In both cases because there will be no buyers.

    Then, their Peronist system of handouts and paychecks for no work will have to support itself.

    That will be good for Argentina and good for the world.

    But I still think one day Argentina is going to adopt the Yuan as its official currency.

    May 07th, 2020 - 01:04 am +1
  • Enrique Massot

    BP

    I agree with part of what you've written above - it would be good if governments did not have free reign on borrowing. However, I disagree with other parts of your posting.

    You wrote if Argentina goes to default, perhaps not one will invest there anymore. However, the country has already defaulted many times -- so, why finance managers keep buying Argentine bonds?

    Answer: Because some governments could not care less about paying down the debt -- they just care about borrowing -- and then some more. As the previous government, headed by Mauricio Macri did. He borrowed at extra high interest rates -- rates that were not replicated anywhere else. Fund managers need to bring return to their investors -- and Argentina just offered them those big returns, and so they invested in spite of the risk.

    Some call it the market's logic. A deadly one.

    You take exception to Argentina calling financial vultures “immoral.”

    I challenge you to become a bit more informed. Vultures are not normal investors. They specialize in buying junk bonds for pennies when countries are in deep shit, keeping them and then claiming them when those countries begin recovery. They have large resources, and their victims are often poor countries. These people serve no purpose whatsoever in the marketplace other than making huge profits on the back of the weakest. Argentina was for them a big mouthful, and Macri served them the country in a platter after Cristina Fernandez did all she could to avoid rewarding them.

    May 09th, 2020 - 11:23 pm 0
Read all comments

Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!