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ECONOMY | 03-08-2020 17:47

Argentina, creditors inch closer on US$65-billion debt deal

The sides have moved closer over the weekend and are discussing a deal where creditors would receive about 54.8 cents on the dollar, according to three people with direct knowledge of the talks.

Argentine bonds rallied to the highest in nearly five months as the government and some of its top creditors moved closer to an agreement to restructure US$65 billion of debt.

The two sides made progress over the weekend and are discussing a deal where bondholders would receive about 54.8 cents on the dollar, close to the midpoint of the most recent offers from creditors and Argentina, according to people with direct knowledge of the matter.

The country’s US$4.25 billion in bonds due 2028 climbed 1.5 cents to 43.3 cents on the dollar, while the benchmark Merval stock index gained 6.6 percent, the most in almost a month.

The breakthrough came during a call on Sunday between Economy Minister Martín Guzmán and BlackRock Inc managing director Jennifer O’Neil, two of the people said, with participation of Bank of America Corp, which is advising the government.

The Economy Ministry’s press office declined to comment. Representatives for the creditor groups, BlackRock and Bank of America did not immediately reply to a request for comment on developments.

Fine points of the deal, including clauses which bolster creditor rights by closing legal loopholes for bond contracts were still under discussion, the people said. Before the latest talks, the gap between the two negotiating positions had been only about three cents on the dollar on a net present value basis, according to Goldman Sachs Group Inc and Morgan Stanley analysts.

Argentina’s dollar bonds rose to their highest in nearly five months, with the country’s US$4.25 billion in bonds due 2028 climbing 1.1 cents to 43 cents on the dollar. The benchmark Merval stock index also gained more than six percent on Monday.

“The market seems to be pricing in that an agreement is close,” said Juan Manuel Pazos, chief economist at TPCG in Buenos Aires. “Though I don’t take it as closed until it’s officially announced and there’s a settlement exchange.”

An agreement would end months of talks between the government and key bondholders including BlackRock, Ashmore Group Plc, and Fidelity Investments, and mark a first step toward stabilising a struggling economy. Inflation hovers near 45 percent, the peso has lost 87 percent of its value since late 2015 and the economy is poised for its third straight year of recession amid a record contraction in 2020.

Efforts are now focused on getting more bondholders on board and to release a statement of support signed by the main creditor groups, known as the Ad Hoc Bondholder group, the Exchange Bondholder group and the Argentina Creditor Committee, one of the people said. That block, which says it holds over 50 percent of the country’s overseas debt, had previously rejected an offer and said it would not support it.

The deadline for Argentina’s current offer, which is due to expire Tuesday, should be extended again as the government will need to publish a new decree including the changes and then submit it to the US Securities and Exchange Commission so that it is publicly available for at least 10 days, the people said. The settlement date would remain Sept. 4, according to the people familiar.

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by Michael O'Boyle, Jorgelina do Rosario & Patrick Gillespie, Bloomberg

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