To little surprise, the government extended the deadline for its US$66-billion debt swap proposal to creditors on Friday – though only by a week.
The short new window, which closes on June 19, is designed to show that the negotiations are moving forward, and that Argentina and its creditors are closer to a deal, a source with direct knowledge of the matter told Bloomberg.
The Economy Ministry said in a statement it was analysing “different ways to improve” its offer and “maximise investor support, while preserving its debt sustainability objectives."
It added that “Argentina and its advisers intend to take advantage of this extension to continue discussions and allow investors to continue contributing to a successful debt restructuring."
The initial deadline for the restructuring bid was originally the end of March. That was then pushed back to May 8, with repeated extensions ever since. The government, according to reports, will now take advantage of the long weekend to fine-tune an improved and supposedly final proposal.
Economy Minister Martín Guzmán is resting his case on the stated opinion of the International Monetary Fund (IMF) that Argentina’s proposal cannot be improved beyond an exit yield of 50 cents per dollar at a discount rate of 10 percent without compromising debt sustainability, but no bondholder group is offering less than 53 cents per dollar. Nevertheless, the difference has narrowed considerably in the last five weeks.
The latest ingredient in the government’s debt offer reportedly consists of an export-linked coupon dubbed a “Value Recovery Instrument.” However, some investment funds are said to be mistrustful after the growth-linked bonds in the 2005 debt swap were subjected to statistical manipulation as from 2007, in order to short-change bondholders.
Creditor acceptance upon expiry of the May 8 deadline was reported to be 13 percent, a figure never confirmed, and Argentina has been in selective default (“soft” is the government’s preferred adjective) since May 22, when the grace period for the April 22 interest payments on three global bonds to the tune of US$503 million expired.
A cross- default (extending to all other bonds) looms for June 22 if no agreement is reached by then.
Offers
The original offer on April 21 implied a 62 percent haircut on interest payments and 5.4 percent on capital (for a total debt relief estimated at some US$41.5 billion of a total of US$65 billion under foreign jurisdiction as against the best bondholder counteroffer of US$36 billion over nine years) with a three-year grace period while the new bonds run until 2047. But the government is reportedly open to reducing the grace period from three years to two while fully respecting capital.
Ámbito Financiero reported the government is closing in on an agreement with the Argentina Exchange Bondholder Group (accounting for over 16 percent of sovereign bonds and headed by the funds Monarch Alternative Capital, HBK Capital and Cyrus Capital Partners) within a non-disclosure agreement, while also closing the gap with the Argentina Creditors Committee led by Greylock Capital.
The toughest nut to crack continues to be the Ad Hoc Bondholder Group including such big names as Ashmore, BlackRock, Fidelity and Western Asset Management, the newspaper added.
Argentina has won international support for its bid to restructure in high places. From the other end of Latin America, Mexican President Andrés Manuel López Obrador chipped in on Friday, confirming at a press conference that his Argentine colleague, President Alberto Fernández, had requested his mediation with specific reference to the investment fund BlackRock due to AMLO’s good relationship with the fund’s CEO Larry Fink.
The Mexican populist leader gave a detailed account of his contacts with Fink (whom he described as “a good person”) on this issue, including percentages of exit yield and recommending “a settlement that’s best for everybody.” BlackRock figures among Argentina’s biggest creditors alongside Pacific Investment Management, Franklin Templeton and Ashmore.
Another overseas heavyweight also waded in on Thursday: Guzmán’s Columbia University mentor, the 2001 Nobel Prize winner Joseph Stiglitz who opined that Argentina’s creditors “have no shame.”
Meanwhile, some investors may see payouts from another source. Bloomberg reported that investors holding debt protection for Argentina could be in line to share compensation of about US$1.4 billion after last month’s default as the latest deadline expired yesterday evening.
Firms holding the country’s credit-default swaps will receive about 66 percent of the amount covered by the instruments, according to the initial results of an auction to settle the contracts yesterday. These are triggered when a borrower fails to pay its debt. Investors use the instruments to make negative bets on borrowers or as hedges for bond investments.
The news agency reports Argentine bonds as rebounding in stock markets over the last month as differences narrowed.
In a piece from its editorial board, Bloomberg urged the government and creditors to reach a deal, saying it was “not too late for a deal that gives creditors a tolerable outcome, without inflicting even more suffering on Argentina’s people.”
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