Argentina seeks to extend maturities on $7.9 bln in local bonds
March 19, 2020 |
Government wants time for foreign-law debt restructuring and extraordinary spending during COVID-19 crisis
Argentina is holding a swap this week for more than ARS500 billion ($7.9 billion) in peso-denominated bonds, a move seen as buying it time as it struggles to work through a restructuring of its $68.8 billion in foreign-law bonds, a process that has been delayed by the government's response to minimizing the spread of the novel coronavirus, COVID-19 and its impact on the battered economy.
The finance ministry is offering at an auction through Thursday to swap 13 local-law treasury notes for four bonds maturing between 2021 and 2024, according to a statement.
Two of the bonds on offer are a reopening of existing bonds, while the other two are new securities, it said.
All of the new bonds will pay CER, a local reference rate now at 20.3%, plus a margin of 100 basis points for those maturing in 1.4 years, 120 basis points for the two-year bonds, 140 basis points for the three-year bonds and 150 basis points for the four-year securities, according to the statement.
The ministry did not specify the reasons behind the swap, but analysts said it is a latest attempt to buy time to avert defaulting on the local-law bonds as capital flight swells with a rout in global financial markets. The swap will also provide a buffer for the government to focus on the more pressing concern of shoring up the economy, analysts said.
Late Tuesday, the government announced a ARS700 billion package of measures to help businesses, consumers, pensioners and workers get through what has become nearly a shutdown of the economy. The government has closed schools, international borders, entertainment venues, sports events and national parks until March 31, possibly for longer, and many businesses have asked employees to work from home.
According to the World Health Organization (WHO), which declared the outbreak a pandemic on March 11, Argentina had 79 confirmed cases of COVID-19 and two deaths as of March 18. It has wreaked havoc on the global economy with predictions of a massive downturn in economic growth and rising prospects of recessions across developing and emerging economies.
Gustavo Neffa, a director at Research for Traders in Buenos Aires, said the government wants to use the swap to ease pressure on its fiscal accounts to handle the expansive spending to sustain business activity, such as through financial assistance to small businesses.
It may be difficult. The virus is hitting at a time when Argentina is in a third year of a financial and economic crisis that is pushing it closer to defaulting not only on the local-law debt but on the $68.8 billion in foreign-law debt that it wants to restructure. Tax collections are declining faster than expected as the economy contracts, and spending is increasing to try to stem the drop in economic activity.
This is making it harder for the government to restructure its foreign-law debts, for which it must get 75% acceptance for its yet-to-be-announced offer to be successful. 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.
“Argentina doesn’t have the luxury to not take care of its fiscal accounts in the middle of a debt negotiation for which it must show that it has the resources to pay creditors,” Neffa told LatinFinance.
Creditors are going to evaluate with what resources Argentina will have to pay its debt from 2021, and that is going to be more difficult to demonstrate as the economy sours.
“Absolutely nobody is in a position right now to analyze the fundamentals of the country in the middle of a liquidity crisis,” he said, adding that for the offer to be successful, “there needs to be an appetite from investors.”
Neffa said he expects a delay of at least a week, probably more, in the restructuring of the foreign-law debts, meaning it will have to extend its peso debts in the meantime.
“The government is doing whatever it can to kick the maturities forward,” Neffa said, pointing out that of the 13 bonds in the local-law auction, one was issued only a couple of weeks ago. “When the norm was to swap bonds when they were nearing maturity, now it is to swap bonds with anticipation.”