Argentine bonds climb on hopes new offers will spark a deal

Argentine bonds extended a rally after the country’s largest creditor groups presented new debt restructuring proposals, fuelling speculation the parties could be closer to reaching a deal.

The US$4.5 billion in overseas securities due next year advanced for a 10th straight day, bringing their gains to 40 percent in that span. The notes added 1.4 cent to about 39.6 cents on the dollar Monday morning.

Argentina and its creditors are seeking to reach an accord on the US$65-billion restructuring before May 22, when grace periods for US$500 million in overdue interest payments expire. That deadline seems out of reach, but even signs of significant progress on a deal will probably keep investors from immediately taking Argentina to court over the default.

“Will the government move its position enough to close a deal this week? Maybe,” said Diego Ferro, founder of M2M Capital in New York. “But if they don’t, while technically a default, it won’t matter. There’s nothing wrong with this negotiation continuing into next week, as it’s extremely unlikely creditors will initiate legal action with the talks ongoing.”

The latest optimism bubbled up late Friday when separate creditor groups released new proposals. One came from a committee led by BlackRock Inc that also includes Ashmore Group Plc and Fidelity Investments. The other was a joint plan from two groups encompassing the Argentina Creditor Committee, Fintech Advisory, Gramercy Funds Management and the Exchange Bondholder Group.

Bondholders had previously rejected Argentina’s initial proposal, presented in mid-April. It asked creditors for a three-year moratorium on bond payments, a steep cut on interest and a 5.4 percent reduction on the bonds’ principal.

While the two counter-proposals signal there’s still a gap in what’s being sought by the disparate creditor groups, they also show that at least negotiations are continuing. The government said in a statement that it received the new proposals, without providing details of their content.

Both counter-offers call for better terms for bondholders than Argentina’s offer, with the BlackRock-led group’s plan seeking a smaller haircut, according to the people familiar with the proposals who asked not to be identified discussing confidential matters.

President Alberto Fernández’s administration is aiming for US$40 billion in debt relief, arguing the country can’t pay in full as its budget deficit and inflation soar and the Covid-19 pandemic deepens a recession that began two years ago.

“Argentina hopefully will be a model of how this can be done with good will, with both sides walking off saying ‘we wish this hadn’t been but we have to live with reality, not with a fictional world,’” Joseph Stiglitz, an economist at Columbia University, said in an interview on Bloomberg Television.