The coronavirus pandemic threatens to complicate matters for several of the world’s most indebted nations, potentially disrupting the restructuring of some US$160 billion in international bonds.
Investors who own debt from Lebanon, Argentina and Venezuela are hunkering down at home as they sort through market chaos. Meantime, officials from Beirut to Buenos Aires and Caracas are working around the clock to manage a public health crisis as the global death toll climbs above 10,000. That’s put debt sustainability exercises and intercontinental travel on the back burner.
Several Argentine bondholders, who spoke on condition of anonymity because the matter is private, said they’re resigned to the reality that the restructuring will probably be on hold for at least two months. That’s well past President Alberto Fernandez’s self-imposed April deadline to present an offer. And in Lebanon, some creditors and advisers say the delay could last even longer.
The pandemic has hampered government operations, economic growth and business travel. The challenges are particularly acute in Venezuela, Argentina and Lebanon, the three big emerging markets in need of restructurings. Venezuela, which began defaulting on some US$60 billion of foreign notes in November 2017, was hobbled even before the outbreak by US sanctions that restrict talks between American investors and Nicolás Maduro’s government.
“Less human contact won’t help resolve stressful, hostile and complicated discussions,” said David Syed, a Paris-based lawyer at Dentons, which is helping advise the Maduro government on its restructuring. “It’s not good. You need to feel the other side and that can only happen in person.”
On Friday, Argentina’s Economy Minister Martín Guzmán said the nation will rely on video conference for debt talks. While bondholders say these conversations could happen, there’s a long history of Wall Street bankers, restructuring lawyers and government officials cementing deals around boardroom tables.
That’s how Argentina completed a restructuring in early 1992 in just two months. The pivotal moment came at the Inter-American Development Bank’s annual meeting that April in Santo Domingo. The 13-member debt committee huddled in a windowless conference room at a hotel off the main thoroughfare at 8pm on a Saturday and didn’t emerge until about 5am on Monday.
“People were napping amidst pizza boxes on chairs in the hallways and drinking cup after cup of coffee,” Bill Rhodes, a former Citigroup Inc. executive who helped lead the talks, wrote in his book Banker to the World.
But travel restrictions have rapidly changed the tenor of today’s talks. Just a few weeks ago, Guzman was hosting creditors for one-on-one meetings in Argentina and Lebanese officials were huddling with investors, while bankers at Lazard Ltd., which is advising both nations, shuttled between the two countries. It’s unclear how many months will pass before that’s even possible again.