Argentina officially delays restructuring offer

Argentina officially delays restructuring offer

Asset Management Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Regulation Politics Argentina US

Argentina has delayed making an offer to restructure $68.8 billion in foreign-law bonds as the government focuses on trying to contain a spread of the coronavirus and its impact on the crisis-torn economy.

"We are going to announce the date in due course," a press officer at the Finance Ministry said Monday.

She declined to be more precise, but said it will not likely take too long to draft a new schedule.

The government had planned to make an offer to bondholders by March 13, followed by a two-week roadshow and a conclusion of the deal by March 31.

However, the global spread of the coronavirus, COVID-19, has led the government to delay the offer, the press officer said.

The World Health Organization (WHO) declared the outbreak a pandemic on March 11 and reported 168,019 confirmed cases and 6,610 deaths by March 16. Argentina has 56 confirmed cases of the coronavirus and two deaths, according to the WHO.

On Sunday night, Argentine President Alberto Fernández announced a series of measures to try to contain the spread of the virus, including by shutting international borders, entertainment venues, schools and national parks until March 31, or possibly longer. He also asked people, especially seniors, to stay at home for the next two weeks.

"We are not doing this because the situation has worsened, but to attack the problem and to be able to manage it," Fernández said in a televised press conference. "What we have to achieve is to minimize the circulation of the virus, that is, to do everything possible so that the virus does not circulate among us."

The president said slowing the spread of the virus will limit the possibility of overloading the health system and thus reduce the potential death rate.

Fernández admitted that it may not be easy. "We are fighting against an invisible enemy," he said, adding that decisions on how to react will be taken as the situation progresses. "The problem is going to continue, but what we can avoid is that its growth becomes exponential and that one day to the next we are facing a problem that we cannot control," he said.

The government had previously shut down flights to China, Europe, the United States and other hot spots for the virus, but Fernández said last week that the outbreak would not delay the debt restructuring, a key for gaining time to pull out of a recession in its third year and avoid a default on more than $100 billion in debt.

Despite the delay, the government published a resolution on Monday that sheds light on how it will proceed with the restructuring. Instead of dealing with all of the $68.8 billion in foreign-law bonds at once, it will do so in stages. The first involves $30.5 billion in bonds, according to a resolution published in the government's official gazette.

Still, the success of the offer could be harder to pull off after a crash in the global financial markets over the past week.

Esteban Domecq, a director at Invecq Consulting, an economic consulting firm in Buenos Aires, said the impact from the coronavirus on the local economy and the debt restructuring is "negative" because it makes it harder for creditors to forecast the Argentine economy's recovery over the next few years.

Global economic growth is likely to slow down in the wake of the coronavirus, and Argentina stands to earn fewer dollars from exports, foreign investments and tourism. Domestic consumer spending is also expected to decline as a result of the containment measures, Domecq told LatinFinance.

"This means less economic and export growth, and less capacity to generate foreign currencies," he said.

At the same time, investors have lost their appetite for risk and are taking refuge in safer assets like hard currencies, European, Japanese and US government bonds, and precious metals. The result is that Argentina will have to make a better offer to creditors than it may have wanted, Domecq said.

The government is expected to ask bondholders to accept a discount on the bonds and an extension on the maturities, a potential offer that has already gained the backing of the International Monetary Fund (IMF), the country's biggest creditor at $44 billion. The IMF asked investors last month to make a "meaningful contribution" so Argentina can get back to making payments on time.

But with rising volatility in global markets, it is becoming harder for Argentina to reach out to creditors, given than most are now focused on crashing asset prices and the impact of the coronavirus.

"A month ago, the big worry was Argentina," Domecq said. "Today, Argentina is in the background, and this is going to hinder the debt negotiations."