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ECONOMY | 09-07-2020 02:37

Guzmán rules out changes to offer, but creditors say proposal 'falls short'

Economy Minister Martín Guzmán rules out further changes to government's debt restructuring offer as offer wins support from IMF and some G20 finance ministers. Large creditors, however, aren't impressed.

Argentina’s bondholders shouldn’t expect any more improvements or changes to the country’s debt restructuring proposal, Economy Minister Martín Guzmán has warned.

However, two of the three groups of creditors expressed dissatisfaction with the new offer on Wednesday, though they said they were open to further talks on a  "consensual restructuring".

"Although we do not accept Argentina's proposal, it seems to us that it provides a basis for a constructive agreement. We are ready to discuss some modifications to the offer that allow for a consensual restructuring," said the Ad Hoc and Exchange Bondholders groups, which hold some US$21 billion of debt issued foreign law.

These creditors, including the powerful investment fund Blackrock, called the new offer that formally presented on Tuesday "a step in the right direction".

The government sees no room for further modifications on an amended offer released Sunday night, part of Argentina’s bid to restructure more than US$65 billion of debt. The proposal gives bondholders about US$13 billion more than its initial plan announced in April. Creditors have until 5pm New York time, August 4 to accept the deal, though deadlines have repeatedly been pushed back.

“Clearly not,” Guzmán said Wednesday, responding to a question about modifying the deal in any way. “Negotiations were performed until the moment in which we launched the offer. Now there’s an offer, and creditors will decide on that offer.”

Mired in recession, Argentina defaulted for the ninth time in its history on May 22, with the government repeatedly extending the deadline for a deal as negotiations dragged on between offer and counteroffer. Along the process, the government said several times that it was making its best effort.

The government, which set minimum participation rates in its latest offer, will assess a partial exchange after seeing the level of creditor participation, Guzmán said in an interview held with foreign press at the Economy Ministry.

“As of today, all alternatives are possible within the constraints that we have defined but the final decision is going to be made once we have more clarity on the process, on the acceptance from creditors,” Guzmán said when questioned about a partial exchange.

Referring to minimum participation levels, he added, “the offer is designed to, first, make sure that every creditor that decides to accept the offer is on the good side of liquidity, so it’s designed in a way that protects creditors that accept.”

The minister said he expects to receive opposition from one of Argentina’s largest creditor groups, known as the Ad Hoc group, which includes investor heavyweights like BlackRock Inc and Ashmore Group Plc. Later that evening, that group published a joint statement with the Exchange Bondholder group, which noted they would not support the latest proposal, but saw it as a step in the right direction.

The offer “falls short of a proposal that can be supported by Argentina’s most significant creditors,” according to the statement. “While we do not accept Argentina’s latest proposal, encouragingly it does provide a basis for constructive engagement.”

Guzmán added that some creditors are already on board and touted praise from a few G20 finance ministers, who met virtually Wednesday and expressed support for Argentina. International Monetary Fund Managing Director Kristalina Georgieva also backed Argentina’s efforts at the summit.

Argentina will seek a new programme with the IMF as soon as it wraps up talks with private creditors, he added, noting that “we need to borrow from the IMF to pay the IMF.”

Asked about the possibility that a partial exchange with private creditors could affect IMF negotiations, Guzmán insisted the two are separate issues and the IMF wasn’t involved in Argentina’s restructuring with private bondholders.

Guzmán added that the government will look to negotiate with the Paris Club after a new deal with the IMF.

The minister ruled out making tweaks including adding a sweetener to the offer, one of the options that had come up during negotiations over the past month. He added that paying accrued interest in cash, which is a sticking point with some of Argentina’s creditors, is out of the question. Argentina is offering to pay accrued interest through new bonds that would mature in 2030.

“Argentina has very tight constraints today – it doesn’t have any capacity to pay anything today,” Guzmán said in a response to a question on paying part of the accrued interest in cash.

Beyond Argentina’s debt, Guzmán faces a harrowing economic recovery once the country gets through the Covid-19 pandemic. Argentina is expected to contract 12 percent this year, on pace for its worst one-year decline in history, amid a strict quarantine that began on March 20 and is expected to remain at least until July 17. Guzman said job creation is the government’s number one post-pandemic priority.

“The state will have to play a role through productive policies and through active management of aggregate demand and credit policies in order to create incentive for job creation,” Guzman added.



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