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ECONOMY | 11-05-2020 08:38

Government extends debt deadline until May 22

Deadline has been extended to May 22 after bondholders opposed the offer. The previous cut-off was May 8, and the extension means results will now be announced on May 25 and liquidated on May 27.

Argentina has given bondholders more time to consider a US$65-billion restructuring offer, buying time for more talks after the government failed to win enough support to reach a deal.

The government is open to accepting offers that both allow the country to reach its debt sustainability goals and enhance creditor recoveries, according to a statement. Hours earlier, Argentina extended the deadline on its debt offer to May 22 from May 8 in a resolution published in the Official Gazette on Monday.

Neither statement disclosed what percentage of investors accepted the original proposal.

“While many of our bondholders supported Argentina’s invitation, other significant groups of creditors did not,” the Economy Ministry said in the statement.

"This extension is considered necessary in the framework of the good faith negotiations that Argentina has carried out with its creditors to restore the sustainability of public debt under foreign legislation," reads the resolution.

It said the government was aiming to "increase participation" of bond-holders though it did not reveal the level of support it had received from creditors for its offer.

The new deadline will occur as about US$500 million of delayed interest payments become due. Failure to reach an agreement or pay the cash by that date would result in a default, Argentina’s ninth in 200 years.

To close the deal, the government needs the support from creditors owning at least two-thirds of some of the outstanding bonds. 

The offer offer to its creditors includes a 62 percent discount on interest (US$37.9 billion) and 5.4 percent on capital (US$3.6 billion).  The country is also requesting a three-year moratorium, which would imply no payments until 2023, when President Alberto Fernández's four-year mandate expires.

Talks planned

The government’s debt team plans to speak with individual bondholders and creditor groups over the course of the week through video conferences, according to a person with direct knowledge of the matter who asked not to be named because the discussions are private. The deadline extension was first reported by Bloomberg.

In its statement, the country said it would consider in good faith any proposal that meets its debt guidelines, including combinations of interest rates, capital reduction, grace periods and extension of maturities different from those that have been proposed.

The extension “will give the government time to revise its proposal on the basis of the feedback it has received, about which it is open, in contrast with its last large restructuring,” said Richard Segal, a senior analyst at Manulife Investment Management in London, which has US$409 billion of assets, including Argentina’s debt. “Investors recognise that Argentina can’t afford to pay much near- to medium-term. There is a chance that the next payments will be made so that the process can continue without the country being in default.”

The bonds trade at deeply distressed levels near 30 cents on the dollar. Argentina’s US$4.5 billion in dollar notes due next year rose one cent to 31.8 cents on the dollar as of 11.30am in New York on Monday.

Before the original deadline on Friday, the country’s three largest creditor groups had already rejected the terms of the offer, which asked bondholders to take significant losses on interest and set a three-year grace period before any payments are made.

“We continue to dialogue in good faith with creditors with the aim of reaching a sustainable agreement,” President Fernández said in a tweet over the weekend.

Backing

Argentina had won the backing of the International Monetary Fund and academics including Joseph Stiglitz and Jeffrey Sachs, and insisted that even before the coronavirus pandemic began wrecking its economy, it was unable to pay what is owed.

Economy Minister Martín Guzmán said May 6 the country is open to tweaking the exact terms of the offer, as long as it leaves Argentina with a sustainable debt burden.

Argentina, which resolved its previous default just four years ago, lured billions of dollars of investment in 2016 after the inauguration of President Mauricio Macri, who had vowed to bring back economic growth. Instead, the country saw a sharp plunge in the value of its currency, accelerating inflation and a severe economic contraction.

The agriculture-driven economy is poised to contract for a third-consecutive year in 2020. Officials are battling a widening gap between Argentina’s official and unofficial exchange rates due to capital controls and annual inflation that’s still hovering above 48 percent.

“The government insists publicly that it wants to avoid a default but the current crisis offers the perfect excuse for President Alberto Fernández to play hardball with Argentina’s creditors,” analysts at consulting firm Teneo wrote in a note.

Buenos Aires Province, which has followed the national government in submitting a proposal to rework US$7 billion of its foreign debt, has given creditors until Monday to accept its initial offer. The province’s creditor group has panned the proposal, saying the deal represents a 60 percent loss to bondholders.

The Central Bank has forecast a seven-percent contraction in GDP by the year's end.

– TIMES/BLOOMBERG

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