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ECONOMY | 05-09-2020 10:24

Creditors overwhelmingly back government’s debt restructuring offer

Argentina wins "massive" bondholder support to restructure overseas debt, exchanging 99% of debt held under international law.

Argentina has managed to restructure 99 percent of US$66 billion in debt issued under foreign legislation, Economy Minister Martín Guzmán announced on Monday, delivering a dash of good news for the government amid the coronavirus pandemic.

The news comes approximately a month after Argentina reached an agreement with three major creditor groups to renegotiate the terms of the debt following months of strained talks and several missed deadlines.

"There has been massive acceptance, thanks to the dialogue process," Guzmán said Monday, speaking at a televised event at the Casa Rosada’s Bicentennial Museum alongside President Alberto Fernández and Vice-President Cristina Fernández de Kirchner, who made just her second trip to Government House since December.

Guzmán said that the deal meant Argentina would benefit from US$37.7 billion in debt relief while its annual interest rate will drop from seven percent to three percent.

"This gives us a sufficient economic timeframe to generate sustainable policies and allow development," said the minister.

In total, 93.55 percent of bondholders agreed to the government's terms, activating collective action clauses to lift overall acceptance to 99 percent. Argentina needed sign-off from at least 85 percent of holders of all bonds issued in 2005 and 2010, and two-thirds acceptance from securities issued more recently for the clauses to kick in.

The high acceptance rate also lifts the spectre of litigation by speculative funds, which have successfully sued the country in the past.

As for the remaining one percent, "this debt will surely be paid," said Matías Rajnerman, an analyst with Ecolatina. "It's very little money, US$600 million. For Argentina it's practically nothing."

Monday's announcement marks a key final step in the restructuring process after four months of intense negotiations with bondholders that culminated in a deal valued at an average 55 cents on the dollar. Argentina pushed back due dates for its bonds and chopped the interest rates, giving the economy a better chance of recovery as it enters its third straight year of contraction.

The country is also waiting to find out this week how many creditors involved in a $41.7 billion debt under local legislation will sign on to a restructuring deal with the same conditions.

Guzmán said the deal would allow the government to tackle other imbalances in the economy. The minister also said that the government’s upcoming budget proposal, which would be sent to Congress “in the coming weeks,” would specify that next year’s fiscal deficit “will be around 4.5 percent.”

Describing the debt talks at a “labyrinth,” in which external interests were entwined with domestic, Fernández said that Argentina had “lost its way” over the last two years, arguing that the country had really entered into default “in January 2018,” when markets stopped lending to the country. 

Argentina has officially been in default – the ninth in its history – since May 22 when the country missed a deadline to pay US$500 million in interest on debt subject to the debt talks.

Fernández said pressure to take a quick deal at any price had been high and that the government had been “fighting against two years of lies.” 

The deal, reached on August 4, is worth 54.8 cents on the dollar, a significant increase on the government’s original offer of 39 cents.

The bonds represent roughly a fifth of the country's US$324 billion in debt, which amounts to around 90 percent of its GDP.

– TIMES/AFP

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