Government sets stage for debt offer with US$50-billion filing

Argentina has registered to issue more than US$50 billion in new debt as it moves closer to making a painful restructuring offer to bondholders.

The filing to the US Securities and Exchange Commission gives an inkling of how much in new securities the country anticipates issuing in the restructuring. The government has said it will make its offer to holders of foreign bonds in coming days.

But that amount could be increased as talks with creditors go forward, according to Ramiro Blazquez, head of strategy at Banctrust & Co in Buenos Aires. The government has said that US$68.8 billion in overseas notes are eligible for restructuring.

“The amount registered under the SEC is not a final number. This is going to be an initial offer as the negotiation is only beginning, though I’m sure it will be a pretty bad one,” Blazquez said. “They are probably going to sweeten the offer throughout the negotiation as I don’t see Alberto taking chances on a default, particularly since economic conditions are extremely fragile.”

Investors are already pricing in a brutal outcome, with most of Argentina’s overseas bonds trading at about 30 cents on the dollar. The economy is set to contract for a third year as the country copes with a currency that’s lost almost two-thirds of its value in the past 24 months and inflation that exceeded 50% in February. The challenge has only grown worse amid the coronavirus pandemic.

The SEC filing cites the pandemic as a possible risk factor that could affect the securities’ value in the future.

What's next?

Last week, the government suspended all payments on foreign-currency securities issued in the domestic market for the rest of the year. For overseas bonds, President Alberto Fernández is seeking a negotiated settlement to avoid a hard default, allowing the country to shore up its finances as it embarks on an effort to bolster the economy. Argentina’s next coupon payment is for about US$500 million on April 22.

“There’s a good chance the government will enter the 30-day grace period on the April 22 payments in order to speed up negotiations. The funds earmarked for debt payments are running out, and so far there been nothing said about new lending from international financial institutions,” Blazquez said.

The country’s gross domestic product will contract 5.7 percent in 2020, according to the International Monetary Fund.