Monday, February 26, 2024

ECONOMY | 31-08-2020 17:52

Guzmán confirms 99% of overseas debt restructured in swap

Argentina wins "massive" bondholder support to restructure overseas debt, exchanging 99% of debt held under international law.

Economy Minister Martín Guzmán revealed Monday that 93.55 percent of bondholders in Argentina's US$66-billion foreign debt restructuring deal have agreed to the government's terms, activating collective action clauses to lift overall acceptance to 99 percent.

The minister, speaking at an event at the Casa Rosada's Bicentennial Museum, delivered the news to applause from President Alberto Fernández and a host of officials, including Vice President Cristina Fernández de Kirchner.

"Ninety-nine percent of the debt under foreign legislation has already been restructured," said Guzmán. "There was adherence [to the exchange] of 93.55 percent, which due to the collective action clauses raises the restructuring to 99 percent."

“We achieved massive support on the part of our creditors,” he added with a smile, saying that the deal “put Argentina in a much healthier and more solid situation” than when the government took office last December.

Argentina needed sign-off from at least 85 percent of holders of all bonds issued in 2005 and 2010, and two-thirds acceptance from securities issued more recently for the collective action clauses to kick in.

The news comes around a month after the government reached an agreement with three major creditor groups to renegotiate the terms of the debt following months of strained talks and several missed deadlines.

The deal, reached on August 4, is worth 54.8 cents on the dollar, a significant increase on the government's original offer of 39 cents.

The bonds represent roughly a fifth of Argentina's US$324 billion total debt, which amounts to around 90 percent of its GDP.


Final step

Monday's announcement marks a key final step in the restructuring process after four months of intense negotiations with bondholders that culminated in a deal valued at an average 55 cents on the dollar. Argentina pushed back due dates for its bonds and chopped the interest rates, giving the economy a better chance of recovery as it enters its third straight year of contraction.

Guzmán said the deal would allow the government to tackle other imbalances in the economy and would provide Argentina with US$37.7 billion in debt relief over the next decade. Interest rates on the bonds in the deal had been cut from seven percent to just over three percent.

"This gives us a sufficient economic timeframe to generate sustainable policies and allow development," said Guzman.

The minister also said that the government’s upcoming budget proposal, which would be sent to Congress “in the coming weeks,” would specify that next year’s fiscal deficit “will be around 4.5 percent.”

He also confirmed the government’s intention to seek a new agreement with the International Monetary Fund (IMF), with payments on its US$57-billion credit-line due in the coming months. Guzmán said those talks would “not be done behind the people's backs, but will be debated in Congress," he added.

The economy minister also called on Argentina’s provincial governments to continue their own talks to restructure debt in dollars, saying they should “respect the sustainability guidelines established by the national government."

Argentina is also in the process of restructuring its foreign debt under local law. The period of early acceptance for holders ends September 1, and the results will be published before the deal’s September 4 settlement date.


‘Lost its way’

The announcement, which began at around 5pm, had been eagerly awaited by markets, investors and media outlets, though officials had briefed over the weekend that the government was “optimistic” about the results of the exchange.

A host of government officials were in attendance, joined by a number of provincial governors by videoconference. Of those gathered in person, only three officials were without a face mask for the majority of the time: Fernández, Guzmán (while he spoke) and Fernández de Kirchner.

The president delivered only a brief introduction before ceding the word to Guzmán, though he spoke at greater length, and with some sense of relief, after the main news had been dealt with.

Describing the debt talks at a “labyrinth,” in which external interests were entwined with domestic, Fernández said that Argentina had “lost its way” over the last two years, arguing that the country had really entered into default “in January 2018,” when markets stopped lending to the country. 

Argentina has officially been in default – the ninth in its history – since May 22 when the country missed a deadline to pay US$500 million in interest on debt subject to the debt talks.

Fernández said pressure to take a quick deal at any price had been high and that the government had been “fighting against two years of lies.” 

“Both the government and bondholders can claim success here,” said Patrick Esteruelas, head of research at Emso Asset Management. He added the government will have a chance to build up hard-currency reserves over the next few years, while investors can take some comfort in reaching a considerably better deal than they were first offered.

While the government will still have to deal with the bonds held out of the deal, the plan to swap 99 percent of overseas bonds draws a stark contrast to 2005, when investors holding almost a quarter of the notes outstanding rejected the deal they were offered. That created all sorts of headaches for Argentina, including a decade-long court battle with billionaire Paul Singer’s Elliott Management that left overseas assets vulnerable to seizure and locked the nation out of international debt markets.


‘Structural change’

President Fernández framed the moment as a campaign promise fulfilled, having told voters on the trail that they wouldn’t bear the brunt of Argentina’s debt burden.

"We don't want to condemn any more Argentines to grovelling," he added.

Highlighting that the deal had been reached in the height of the coronavirus pandemic, the Peronist leader also warned that Argentina still had to “be able to comply” with its scheduled payments, saying it was essential to get the economy back on track.

"We've come out of the labyrinth," he declared, calling on the country to learn its lesson this time out and not to return to excessive indebtedness in the future.

The country must now "produce, grow, export, accumulate reserves and then pay" down the debt, he added, saying this would entail “structural change.”

Fernández then thanked a host of European leaders for their support in the process, even picking out Pope Francis, saying the leader of the Catholic Church had been “silently” helping his country debt restructuring bid.

Fernández also voiced thanks for International Monetary Fund chief Kristalina Georgieva, describing upcoming talks with the Fund as “the other obstacle” that lay ahead.

Last week, the government formally asked for talks to replace its financing arrangement from 2018. Officials will only request enough money to refinance the existing obligations, and the nation plans to continue making interest payments during the talks, IMF executive director for the Southern Cone and Argentina' representative to the Fund, Sergio Chodos, said recently.



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