Blaming Milei for woes, Argentina’s Clisa asks for debt leniency

As one of Argentina’s largest public works companies runs out of cash and asks investors for leniency, it’s pointing the blame squarely at Javier Milei.

Milei hasn’t been in office very long — all of 61 days — but Cia Latinoamericana de Infraestructura y Servicios says his plans to gut government spending on construction projects, combined with the peso devaluation he oversaw upon taking office, are already hammering its business.

That’s why waste management, construction and transportation giant Clisa says it’s asking investors to accept more bonds — rather than US dollars — as an interest payment on a US$343 million note due in 2027. It’s a move that rating assessors are already warning will be tantamount to a default, foreshadowing more trouble ahead.

“The risk of a restructuring is super high,” said Francisco Schumacher, a corporate analyst at BancTrust & Co. “We don’t see a rebound in public infrastructure spending and are recommending caution” on the company’s bonds.

The distress at Clisa, a key subsidiary of 115-year-old conglomerate Grupo Roggio, is shining a light on tension between the corporate sector and Milei’s efforts to quell triple-digit inflation and spur growth. Just this week, the president was dealt a blow when a bill underlying his economic overhaul — “shock therapy,” as he called it — was sent back to square one by lawmakers.

One in 10 corporate dollar bonds in Argentina have yields trading more than 10 percentage points over similar US Treasuries, according to data compiled by Bloomberg, a signal of distress.

The risk premium on Clisa’s note due in 2027 is among the highest of the bunch, with investors demanding an extra 66 percentage points in yield to hold the notes instead of the US benchmark. The note trades at 23 cents on the dollar, just off an all-time low.

The company points to Argentina’s macroeconomic chaos as the reason for its hardships. Clisa says its clients often pay their bills late and using local pesos — meaning the cash clients transfer to the company has often lost value from when services were rendered amid inflation that has soared to the fastest in more than three decades.

Milei’s rise to power has complicated matters further, Clisa told bondholders in a statement on the rationale for changing the terms of its debt payments. The government’s pledge to cut back on public works has already slowed down business, it said, adding that the fiscal adjustment plan would be painful. The company didn’t provide numbers on the impact of the new policies in the statement, and didn’t respond to emails or phone messages asking for further explanation.

One effect of Milei’s shock plan that Clisa detailed was the sharp devaluation of the official peso. The new government devalued the peso by 54 percent in its first week in office, and analysts expect another move will be needed soon. The depreciation “affects Clisa’s financial condition significantly,” the company said, as 82 percent of its debt as of September was denominated in foreign currencies, while 87 percent of revenue during the preceding year was in pesos.

Trouble at Clisa, however, reaches back further than Milei’s career in politics. Shuttered construction projects during the pandemic led the company in 2021 to ask investors to exchange bonds maturing in 2023 for new notes due in 2027. It also exercised a payment-in-kind option for a July 2020 interest payment that led to a downgrade into default.

The fate of Milei’s belt-tightening campaign is now in limbo after his omnibus bill failed. Even so, Paula La Greca, a corporate credit analyst at TPCG Valores in Buenos Aires, said Clisa’s decision to ask bondholders for leniency was logical after it deferred a US$10.7-million interest payment on the notes due January 25.

The company is asking for the consent of holders to make that payment of 8.5 percent fully in the form of payment-in-kind securities, rather than the previously agreed 6.25 percent in cash and 2.25 percent payment-in-kind notes.

“It will probably have a very high participation rate near 100 percent,” La Greca said. “Basically, whoever refuses to participate is left with neither bread nor cake.”

Bondholders had until 5pm New York time on Friday to respond, and the company needs approval from holders of at least 75 percent of outstanding notes to change the terms.

Rising risks

Both S&P Global Ratings and Fitch Ratings last month warned that a successful consent solicitation would lead Clisa into default. The company is scored CC at S&P and C at Fitch, both deep into junk territory.

But a downgrade into default, even if quickly remedied with the changed terms, could spiral into a larger problem. Clisa owes holders of its 2027 bond another US$12-million interest payment in July, according to data compiled by Bloomberg.

As of September, the company had readily available cash in hand of ARS9.5 billion (US$11.4 million at the official exchange rate) and short-term debt of ARS34.4 billion, according to Fitch.

Without a turnaround, another negotiation with bondholders may be necessary, Fitch’s Andres Correa said in an interview. Clisa has, in the past, won approval from holders of more than 90 percent of its bonds to alter its debt structure.

“The risk of another consent solicitation and a further restructuring process is possible,” said Correa. “That’s what their rating reflects.”