Thursday, November 14, 2019
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ECONOMY | 28-08-2019 22:38

Government seeks to extend maturity of US$101 billion of debt

Macri administration to postpone US$7 billion of payments on short-term local notes held by institutional investors this year and will seek the “voluntary reprofiling‘’ of US$50 billion of longer-term debt. It will also start talks over the repayment of US$44 billion it has received from the IMF.

Argentina is seeking to extend maturities on tens of billions of dollars of debt and delay repayments to the International Monetary Fund after a collapse in the peso and its bonds.

The government will postpone US$7 billion of payments on short-term local notes held by institutional investors this year and will seek the “voluntary reprofiling‘’ of US$50 billion of longer-term debt, Finance Minister Hernán Lacunza said. It will also start talks over the repayment of US$44 billion it has received from the IMF.

“The government is aiming to clear the outlook for the financial program in the short, medium and long-term horizon,” Lacunza said. “This is due to short-term liquidity stresses and not due to problems with the solvency of the debt.”

The announcement follows a dramatic week for Argentina that saw bonds fall to a record low and the peso slump. By the end of trading on Wednesday, investors were pricing in a near 90 percent chance that the country will default in the next five years. Today’s measures will ease some of the immediate pressure on government and Central Bank finances.

The government will start talks to reprofile debt that matures in less than 10 years under foreign legislation using collective action clauses and will invite banks to submit proposals as of the end of the day Thursday.

'Neutral to positive'

“I think it’s neutral to positive,” said Ezequiel Zambaglione, head of strategy at Balanz Capital Valores in Buenos Aires. “In the worst case scenario, nobody accepts the offer and you are in the same situation as yesterday. And if they reach an agreement and are successful in the swap, you’ll have less funding needs for the next years.”

As the crisis worsened during August, the Central Bank rolled over less than 10 percent of Treasury bills falling due and held by the private sector.

”One of the metrics we’ve been monitoring for our clients has been the rollover rate for domestic T-bills,” said Roger Horn, a senior emerging-markets strategist at SMBC Nikko Securities America in New York. “Today’s 10 percent success rate apparently made it clear to the finance team that something big needed to be done.”

Argentina’s financial markets have tumbled since a shock primary result on August 11 showed President Mauricio Macri trailing his leftist rival by 15 percentage points ahead of the October 27 election. The next administration would take over on December 10.

Opposition front-runner Alberto Fernández’s team will comment on the government measures on Thursday, according a spokesman.

“We are surprised by the timing of the measure and skeptical that it will achieve the desired results,” Bloomberg Economics analyst Adriana Dupita said. “Postponing payments may provide temporary relief, but does not change the crux of the matter.”

Officials from the IMF were in Buenos Aires this week to meet with policy makers and the opposition. The fund was expected to disburse another US$5.3 billion next month from a record US$56-billion agreement though that is far from certain under the current crisis.

The IMF officials are “in the process of analyzing” the measures announced Wednesday, according to a statement. “Staff understands that the authorities have taken these important steps to address liquidity needs and safeguard reserves.”

Shore up the peso

Foreign-currency reserves have plummeted more than US$10 billion in the past month as policy makers sought to shore up the peso after the primary.

The currency has tumbled 28 percent since the obligatory nationwide primary election, even as the central bank takes increasingly drastic action to defend it. The bank sold US$367 on the currency market Wednesday and US$302 million the day before, according to a people with knowledge of the matter.

Tens of thousands of people marched through the streets of the capital on Wednesday to demand the government do more to mitigate the impact of the economic crisis in a country that has defaulted on its debt eight times since independence from Spain.

“This is the first time I’ve ever seen this – a president in the middle of elections proposing a debt re-profiling,” said Francisco Ghersi, managing director of Knossos Asset Management, which holds some Argentine bonds. “Still, if Macri succeeds with the swap, this could help his political standing before the vote.”

by Philip Sanders, Pablo González & Jorgelina do Rosario, Bloomberg

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