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ECONOMY | 22-05-2020 23:05

Government to rework debt offer after missing interest payment

Counter-offers submitted by bondholder groups are better than their original proposals, yet still far from what the country considers sustainable, says Martín Guzmán.

Argentina is looking to modify its debt offer as fluid talks with key creditors continue, according to Economy Minister Martín Guzmán.

Counter-offers submitted by bondholder groups are better than their original proposals, yet still far from what the country considers sustainable, Guzman said in an interview with Bloomberg on Friday. The government has yet to determine when it will present its improved offer, he said.

The country fell into its ninth default Friday after failing to make a payment worth about US$500 million. Argentina extended the deadline for creditors to consider its debt restructuring offer until June 2 as both sides need more time to reach a deal.

Key creditor groups have committed not to demand immediate repayment on debt, a process commonly known as acceleration, Guzmán added.

“Our intention is to amend the offer based on the negotiations, so that it has a structure compatible with the restrictions we face, as well as the bondholders’ preferences and objectives,” Guzmán said in an interview at the Economy Ministry in downtown Buenos Aires.

Argentina had previously demanded a three-year moratorium on payments, sharp cuts to interest rates and a reduction in the principal owed. After two months of negotiations and a deadline extension to May 22, the government and its biggest creditors couldn’t reach a deal. People familiar with the matter said there was a gap of about 20 cents on the dollar between what the government was offering and what creditors want.

The government remains flexible on the specifics of the deal and could use sweeteners to make it more appealing to creditors, according to Guzman.

“There’s flexibility on the combination of parameters,” he said. “While the counter-offers we received last week are closer than the first ones we received, they’re still far from what Argentina can sustain.”

Bonds were little changed Friday, with most securities trading between 30 and 40 cents on the dollar, as investors had largely anticipated that Argentina wouldn’t make the overdue interest payments. The notes had rallied from record lows in recent weeks amid some optimism an accord can be reached in coming days and weeks.

Investors are resigned to a certain amount of losses, and the government has tried to keep things friendly by avoiding rhetoric that demonised creditors, a hallmark of the country’s battles with hedge funds after its 2001 default.

Bondholder groups lamented the missed payment Friday but said negotiations will continue.

Argentina’s default at the turn of the century led to 15 years of costly court battles with creditors. It’s unlikely we’ll see a repeat of that, according to Alberto Ramos, the head of Latin American economics at Goldman Sachs Research.

“Given all these signals that all these things seem to be progressing, I don’t think anyone will litigate immediately,” Ramos said. “There will be an understanding with bondholders and life goes on.”

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