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ECONOMY | 21-04-2020 23:43

Guzmán warns disappointed creditors that debt offer ‘is what it is’

As creditor groups reject government's proposal, economy minister warns debt restructuring offer presented to bondholders is the only one on the table and reiterates that no payments are possible before 2023.

Economy Minister Martín Guzmán declared Tuesday that the debt restructuring offer presented to Argentina’s creditors is the only one on the table – and the only option that's possible for the country right now.

His comments come after a difficult few days for the government, which has seen its opening salvo in crucial “reprofiling” talks met with a cool response from bondholders. 

In recent days, a number of large creditors have indicated their unhappiness with Argentina’s offer, with at least three separate groups indicating they will reject it, paving the way for a difficult negotiation with a crucial deadline looming.

In an interview with Radio El Destape, Guzmán said Tuesday that the reaction was to be expected. However, he said Argentina would not come back with a better offer – and that bondholders know the country can’t pay up right now.

"They [the bondholders] had a fairly precise idea of ​​what to expect, there has been a lot of discussion about Argentina's ability to pay," said Guzmán.

On Friday, after announcing its proposal a day earlier, the government presented an offer to creditors to restructure more than US$66 billion of debt issued under foreign law. 

Under Argentina's proposal, payments would be stalled until 2023, with a large 62 percent cut in interest. Bondholders would exchange their securities for new ones with interest rates that start at zero and gradually increase, creating an average rate of 2.33 percent – below what’s typical for emerging-market debt. The haircut on principal is relatively small at just US$3.6 billion, while the cut on interest obligations totals US$37.9 billion.

"The offer is what it is, and it is already in the US Securities and Exchange Commission (SEC)," Guzmán said, reiterating that for the next three years "nothing can be paid."

President Alberto Fernández, who said last week that Argentina was in a “kind of virtual default,” has repeatedly said he wants to pay down the country’s debt, but says there’s no money to pay up at the moment.

Rejection

At least two creditor groups have publicly rejected Argentina's debt restructuring proposal issued late Friday, placing a cloud of the government's hopes of renegotiating its dollar-denominated foreign debt load and avoiding another default..

On Monday, the Argentina Creditor Committee (ACC) and the Group of Exchange Bond Holders (also Grupo de Titulares de Bonos de Canje), expressed their rejection of the offer. Wall Street analysts, meanwhile, described the proposal as aggressive and said it would need reworking in order to win over bondholders. 

The ACC, which groups together investment funds including BlackRock, Greylock Capital and Fidelity, said in a statement issued Monday that it had "reviewed the proposal made by Argentina and unfortunately [we] cannot support it."

He added that "the unilateral offer [Argentina] has fallen far below the expectations of the bondholders, and there have been no significant discussions."

For its part, the Group of Exchange Bond Holders described the proposal as "unacceptable,” adding that it has “no intention of supporting it."

Matías Rajnerman, chief economist at the Buenos Aires-based Ecolatina consulting firm, considered that a "rejection by creditors is never ideal, but it is logical because the proposal is a negotiation."

"The proposal is less aggressive than expected, but nobody says it is lax," he told AFP in an interview.

Guzmán said he wasn’t phased by the move, implying it was a negotiating tactic.

"The expressions of rejection were expected,” he said. “It is also part of a process in which the other party seeks to pressure Argentina to offer more, which cannot be done because offering more is not sustainable," he said.

A source inside the Economy Ministry told AFP that the reaction was “foreseeable.”

Clock ticking

Nonetheless, the window for Argentina to seal a debt deal is small. Creditors were given until May 7 to agree to the offer, just over 20 days.

The country has US$3.5 billion in payments on foreign-law bonds due the rest of 2020, according to Buenos Aires-based consulting firm 1816 Economia y Estrategia, including US$500 million in interest payments on the bonds in question, due this Wednesday, April 22.

Argentina is not expected to meet that deadline, which would put the country in a one-month-long race against time before officially being declared in default.

The government inherited a debt load that had increased from 52 percent of GDP to 91 percent during the four years of the Mauricio Macri government. The Central Bank says that total public debt reached US$323 billion at the end of 2019, when President Fernández took office.

At least US$44 billion of that is owed to the International Monetary Fund (IMF), which Macri tapped for a huge loan in 2018 amid a currency crisis.

Argentina has been gripped by recession for two years and its economy is predicted to contract by 5.7 percent this year as a result of the coronavirus pandemic and subsequent nationwide shutdown, according to an IMF forecast.

"The pandemic disadvantages the Argentine negotiation because there are many more urgent matters for the State than for the creditors. The coronavirus, unfortunately, works against negotiating," said Rajnerman.

– TIMES/AFP/BLOOMBERG

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