Tuesday, March 31, 2020
Perfil

ARGENTINA | 27-02-2020 07:00

20%? 35%? Analysts ponder what's an acceptable haircut for bondholders

The IMF's support for the government last week won't convince bondholders to accept a larger haircut of Argentina's debt than initially foreseen, according to analysts.

The International Monetary Fund’s endorsement of the Government won't convince bondholders to accept a larger haircut of Argentina's debt than initially foreseen, according to analysts consulted by Perfil.

The IMF last week declared that Argentina's debt burden is "unsustainable" and said that restructuring would necessitate a "meaningful contribution” from private creditors.

For some experts, a nominal reduction of 20 percent of capital would be an acceptable limit for most investors. According to the majority of those consulted by Perfil, a haircut of higher than 35 percent over a bond's values is improbable.

Undefined 

According to financial analyst Christian Buteler, the IMF's tacit support for the Alberto Fernández administration “will embolden the Government to adopt a aggressive stance," but "creditors will not consider the IMF's word to be holy – I don't see them [being] willing to accept an important haircut.”

In contrast, Lorenzo Sigaut Gravina from the Ecolatina consultancy firm evaluated that due to the IMF's “accolade ... creditors are going to accept a reduction, given that the initial bet was to make something in the 'Uruguayan fashion,' to continue for the long term, but without a haircut."

Norberto Sosa, an economist with the Investir en Bolsa news portal estimated that Economy Minister Martín Guzmán’s path to date would imply “a four-year postponement of capital and interest, plus a half reduction in coupons, which would mean a reduction of net current value of 45 percent, without cutting capital.” He added that “a haircut above 35 percent would, it seems to me, to be difficult to negotiate.”

Guzmán met with IMF Managing Director Kristilina Georgieva last weekend in Riyadh, on the sidelines of a G20 summit. This week, he travelled to Washington and New York to continue negotiations.

Head of strategy Ezequiel Zambaglione at Balanz, speculated that the IMF and Argentina could "have the objective of lowering creditor expectations, starting with a slightly stronger proposition than 30 percent, and closing with a capital haircut of 20 percent that would be acceptable, along with a coupon reduction of 150 points.”

In that sense, he commented that “because of the contact that we have with clients from outside [the country], there are few who look favourably on a larger cut.”

Default

In line with this, Economist Diego Falcone agreed that “it’s difficult for a removal to succeed over 20 percent of capital, and a drastic cut in interest," adding that "the market has not yet given signals with the BP21 (from BA Province) and (the first swap) the AF20 that they’re not disposed to accept anything.”

Looking back, he added that in 2005 and 2010 “the cuts were vastly superior, but default had already been declared, the country was growing and generating dollars, it came out of the hardest part of the crisis, and the Government had credit,” he added.

According to Miguel Zielonka, an analyst at Econviews, “the nominal haircut itself is anecdotal,” what is worth evaluating is net present value, i.e. “what are the bond worths in the markets with the new conditions” of the proposal that emerges from the composition of capital, terms and rates.

Within this framework, he explained that “bonds today are worth 45 percent of parity, based on what other experiences, if what is proposed is a combination of those variables where titles are worth between 60 and 70 [percent], I believe that most of bondholders will accept.”

Mirta Fernandez

Mirta Fernandez

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