Argentina on Tuesday formalised its new offer for a bond swap covering some US$66 billion of foreign debt under overseas jurisdiction, sparking another week of back-and-forth between creditors and the government.
Following presentation of the amended version of its initial proposals to the Securities & Exchange Commission (SEC) of the United States, creditors will have until 5pm on August 4 New York time to accept this offer.
Economy Minister Martín Guzmán, speaking earlier this week, said this was Argentina’s “final offer” and refused to rule out sealing a deal with only some of the creditors.
Argentina is also considering the possibility of resolving much of rather than all [this debt], concluding a partial agreement," Guzmán explained to Radio Con Vos.
With this amended version, Argentina is offering to pay 53.5 cents per dollar of debt as against 39 cents in the previous offer which was rejected by the creditors. The grace period was reduced from three years to one with Argentina starting to pay as from September, 2021.
In total, the proposal gives bondholders about US$13 billion more than its initial plan announced in April.
"Obviously this is a much improved offer, a good proposal because it more or less falls within the range of creditor demands and also Argentina’s conditions," said economic analyst Sebastián Maril.
With the economy in recession since 2018 and the impact of the pandemic translating into a Gross Domestic Product shrinkage of 9.9 percent as estimated by the International Monetary Fund (IMF), sealing the deal on restructuring the debt is vital for Argentina.
"It’s the first step towards recovery and also the most difficult," considers Maril.
Argentine officials, including Guzmán, Cabinet Chief Santiago Cafiero and President Alberto Fernández all this week pushed the line that the country could not stretch beyond the new offer on the table.
The International Monetary Fund (IMF) said it considers the new offer "an important step in the process of restructuring debt with private creditors."
"We hope that all sides involved continue working constructively in a timely fashion with the aim of reaching an agreement which places public debt on a sustainable path, establishing the bases for inclusive and lasting growth," said IMF spokesman Gerry Rice.
An agreement would permit the country to emerge from the default incurred in May when interest to the tune of some US$500 million in bonds subject to the swap went unpaid. But restructuring the debt issued under local legislation or owed to multilateral organisms still lies ahead. Argentina’s public debt totals around US$324 billion, almost 90 percent of GDP.
"Restructuring the debt and overcoming the coronavirus pandemic are two necessary conditions for economic growth. The problem is that they are not sufficient conditions," said Matías Rajnerman, the chief economist of Ecolatina consultants.
"They must placate the pressures on the exchange markets and return to consumption and investment, for which more certainty is needed to generate confidence," indicated the economist.
The pandemic has affected agricultural exports, Argentina’s main wealth, apart from hitting the other economic activities and employment. In May Argentina’s exports were US$5.06 billion, representing a fall of 16.3 percent as against the same month in 2019.
During the negotiations, Argentina ran into strong resistance from the powerful investment fund Blackrock, which aspires to greater payment.
"In the next few days we’re expecting a hostile communiqué and then they’ll take their time to decide. We have dialogue with that sector but not agreement. Our intention is to find an agreement with BlackRock, we don’t want confrontation," Guzmán said Tuesday.
A day later, that statement duly arrived. Two of the three groups of creditors expressed dissatisfaction with the new offer, though they said they were open to further talks on a "consensual restructuring".
"Although we do not accept Argentina's proposal, it seems to us that it provides a basis for a constructive agreement. We are ready to discuss some modifications to the offer that allow for a consensual restructuring," said the Ad Hoc and Exchange Bondholders groups, which hold some US$21 billion of debt issued foreign law.
Guzmán, in turn, urged creditors to enter now into the bond swap, warning that further down the line the country will be in a worse state.
"We’re in a situation of double crisis: macro-economic crisis since April, 2018, and now the coronavirus crisis. Did we think that our capacity to repay would improve if we waited to resolve our problems? We certainly did not. Here a very reasonable offer has been made and it is in the best interests of all sides to settle," he maintained.
Rejection by BlackRock would be a negative but there are no speculative funds wishing to drive this issue into the courts this time as happened in 2014, said Rajnerman.
"BlackRock is not a vulture fund. It will not settle as things now stand but for 60 cents per dollar or at some point, they will settle," he said.
"If they stay out of the swap, that would mean they would have to keep haggling, in which case either Argentina improves its proposal at some moment or BlackRock decides to yield, whichever happens first," indicated Rajnerman.
The bonds which Argentina seeks to renegotiate include those issued in 2005 and 2010 in a previous restructuring of the debt plus others placed as from 2016. The new bonds emerging from this swap will fall due between 2030 and 2046.
On Thursday, reports emerged that the Ad Hoc group had sent a message to the Economy Ministry through an intermediary, indicating it was ready to re-open talks via satellite connection this week.