Argentina to extend restructuring talks beyond Friday

Argentina to extend restructuring talks beyond Friday

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Argentina is pressing ahead on negotiations to restructure $66 billion in foreign-law bonds, working with three counteroffers from creditors with the view to reaching a deal as soon as possible, even if this means missing an already delayed $500 million debt payment due this Friday, Economy Minister Martín Guzmán said on Tuesday. 

"The negotiations will continue," he said during a videoconference hosted by the US Chamber of Commerce when asked if talks could go beyond this Friday’s deadline for reaching a deal. 

Argentina failed to make a $500 million payment on three bonds included in the restructuring offer on April 22, taking advantage of the 30-day grace period to continue with negotiating with creditors on the restructuring. 

"There is a big chance that the deadline is extended so we can eventually make the amendments that are necessary in order to achieve a sustainable deal with our creditors," he said.

He did not say how long he thought it could take to come to a deal, and that the key is to continue the talks with the creditors. 

Argentina made an offer on April 22 to swap 21 outstanding bonds for 10 new notes that mature in 2030, 2036 and 2047, but it was almost immediately rejected by three groups of investors who hold enough of the bonds to thwart a deal. Argentina’s proposal includes a three-year grace period on making any payments, a 5.4% cut in principal payments and a 62% reduction in interest payments, which all told would bring $41.5 billion in debt relief for the country, largely by slashing the interest rate on the bonds to an average of 2.33% from a current 7%. 

The three groups of bondholders presented counteroffers on May 15, agreeing that the grace period should be shortened to one year and the sovereign should pay higher interest, at between 4% and 5.1%. All told, the counteroffers would improve what the creditors take from the deal, with net present values of between $50 and nearly $70 based on an exit yield of 10%, according to estimates. That is better for the bondholders than the valuations of the government’s offer of between $39 and $44.

Yet with a deadline for paying the $500 million approaching, concerns have swelled that Argentina will default, the ninth in the sovereign’s history, before reaching a deal.

Guzmán appeared to downplay the setbacks of a default. 

"The May 22 date — I would think of that day as now anecdotal," he said. "We are in a process. We are in the middle of negotiations. Both sides are working with the intention of reaching a deal."

While he called the dialogue with the creditors “constructive,” he said it will take more negotiating.

"There is still some way that we have to go through together. We need to deepen this process of collaboration. We are all working on that,” he said. “We will continue working on that towards the goal of restructuring the debt."

Guzmán also played down the setbacks from a default on Friday, saying that Argentina has already lost access to international financial markets and that the financing costs were "prohibitive" before. Argentina has been in a financial crisis since 2018, and it has only worsened this year with the COVID-19 pandemic, which could shrink the economy by more than 5%, according to most estimates.

Guzmán said that extending the deadline only requires a government resolution, but added that reaching a deal remains a top priority. 

"The sooner this gets resolved, the better," he said. "What we need is a sustainable deal. That's of the essence here. Not any deal works. The deal has to be sustainable. The deal has to be successful [in the sense that] it puts Argentina back on its feet. That’s how the process will continue."