Argentina files to sell $52 bln in fresh debt
April 16, 2020 |
Government says it could issue new notes to refinance, repurchase or retire local and foreign bonds
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Argentina filed with the US Securities and Exchange Commission (SEC) on Wednesday to issue up to $51.7 billion in debt, a day before it is expected to unveil an offer to restructure as much as $83 billion in foreign-law bonds.
The government could use the proceeds from the proposed debt sale to refinance, repurchase or retire both local and foreign bonds, or offer the new notes in a possible bond swap, it said in the filing.
The filing came a day after the government issued ARS314 billion ($4.79 billion) in new local bonds in a debt exchange as part of its efforts to gain time to negotiate a deal with holders of foreign-law bonds. In the swap, almost 90% of the holders of the ARS98.3 billion in Treasury bonds that mature on April 28 accepted to exchange them for four notes due between July 2020 and March 2022, the Economy Ministry said.
The deal followed a move earlier this month to postpone payments on $9.8 billion in local-law, dollar-denominated bonds until December 31 at the latest.
José Ignacio Bano, head of research at InvertirOnline.com, a brokerage firm in Buenos Aires, said the local bond swap was successful because of the large acceptance rate. While around 65% of the maturing bonds were held by state-run entities, which were going to accept the offer no matter what, most of the private investors also agreed to take the new bonds, he said.
"This is positive, but I don't think it is a sign of what could happen with the negotiation of the New York-law bonds," Bano said. "It doesn't set a precedent for the negotiations with the foreign-law bondholders."
Local bondholders are subject to forms or persuasion that the government cannot use with the holders of foreign-law bonds, he said.
The government has not provided specifics on what it could include in its offer to international investors, but Economy Minister Martín Guzmán has said it will seek a grace period on payments, longer maturities, lower coupons and a possible haircut. The International Monetary Fund (IMF), Argentina's largest creditor with a $44 billion loan, has come out in support of such an offer, calling on bondholders to make a "meaningful contribution" so Argentina can pull out of a prolonged financial crisis that has worsened with the spread of the coronavirus.
The challenge is to make an offer that is acceptable for the creditors and allows the economy to recover from a recession that is already in its third year. If the offer is too aggressive and bondholders do not accept it, Argentina will run the risk of falling into default. But if the offer is too generous, Argentina may not gain the time it needs to get out of the crisis, Bano said.
"It's a fine line," he said.
President Alberto Fernández is expected to hold a meeting on Thursday with the country's 24 governors to show support for the offer, according to local news reports. After that, Guzmán is expected to present details of the proposal.
The government had been shooting to wrap up the restructuring by March 31, but the advance of COVID-19 has shifted its focus to trying to contain the outbreak, which reached 2,443 confirmed cases and 107 deaths on Wednesday, up from one case at the start of March, according to data compiled by Johns Hopkins Coronavirus Resource Center.
While the pandemic has slowed negotiations with bondholders, it may actually help Argentina get enough acceptance to push through its offer, Bano said. With many emerging and frontier markets also on the verge of debt crises, Argentina is no longer on its own.
"It's one thing for an investor to say, 'Uff, it's Argentina once again and I'm sick of this and I'm not going to accept anything they offer,'" Bano said. "And it's another thing when the entire world has problems. Argentina can defend its position much better."
State news agency Télam reported on Wednesday that Guzmán last month asked the Paris Club of creditor nations to delay a $2.1 billion payment for a year and discuss changes to the debt agreement it reached with Argentina in 2014.
Grace period the priority
Eduardo Blasco, a financial consultant at Maxinver in Buenos Aires, said he expects Argentina will put a priority on getting a grace period of two to four years on repayments.
"Argentina needs a few years during which it is not paying the debt," Blasco said. "This is 10-times more important than extending the maturities."
The second aim will be to reduce the interest rate, he added. With international interest rates at practically zero – the 10-year US Treasury rate is less than 1% – it is plausible to think that bondholders could accept cutting the rates on Argentina's bonds in half to 3% or 4% from 7%, Blasco said.
Still, Argentina may try to offer a sizable reduction on the amount to be repaid to creditors for political gain because it is easy for voters to visualize a debt reduction to $70 billion from $100 billion at the expense of the creditors, Blasco said.
Nevertheless, he said it is more effective for the country to reduce the interest rate, as that eases interest payments going forward.
"If I owe a debt of 100% of GDP at 2%, I'm doing pretty good," Blasco said. "But if I owe 50% of GDP and I'm paying 8%, I'm a whole a lot worse off."