Argentina default risk still high, despite talks
Country has said that it is ready to negotiate, yet time pressures mean that default is still a likely scenario
With a debt payment deadline fast approaching the chances of an
Argentine default are high, despite the sovereign saying it is
willing to negotiate with holdout creditors, sources have told
|| Source: Casa Rosada
The Argentine government has said that it would be
"impossible" to make a $900m payment to restructured
bondholders by June 30, which would trigger a technical default
following a 30-day grace period.
A default is still the most likely scenario, say
sources. But the country is in better economic shape than when
it last defaulted in 2002, while Ecuador's successful return to
the market last week shows that investors may overlook a
"I suspect Argentina will go into technical
default, but it won't last long. And investors will continue to
chase yield. Under normal circumstances, this would be the kiss
of death, as it was in 2002. But times have changed, and
markets are forgiving," said one portfolio manager.
Jefferies said it expects a protracted negotiation,
and therefore sees a 65% to 70% chance of default.
"The latest official rhetoric has been more
moderate signaling willingness to negotiate with the holdouts
without mention of the workaround solution. This is the first
clear encouraging signal from Argentina and explains the
knee-jerk recovery back to pre-judgment price levels for the
discount bonds," the investment firm said in a note on
An agreement hinges on whether or not the parties
will make concessions. "It boils down to what NML will accept.
And that's anyone's guess," said another investor.
But as well as making concessions, the negotiators
would have to overcome another major hurdle. The agreement with
restructured bond holders is subject to a clause that prevents
Argentina from offering holdout creditors better terms than
those given to the investors that subscribed to the 2005 and
2010 exchanges. The clause expires at the end of the year.
"One possible solution that has been proposed is
that the Argentine government deposit funds into an escrow
account as a show of good faith, with a view to then
renegotiating terms with holdouts once the lock law has expired
at the end of this year," Capital Economics said in a research
note on Monday. LF