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ECONOMY | 31-08-2020 22:54

Investors welcome debt deal amid grim economic outlook

Investors are caught between relief over Argentina’s debt deal and concern over the grim economic reality facing the country.

Investors are caught between relief over Argentina’s debt deal and concern over the grim economic reality facing the nation after it won approval to restructure 99 percent of its foreign debt.

President Alberto Fernández's government received tenders for 93.5 percent of the US$66 billion of debt eligible for restructuring, activating collective action clauses and bringing a total 99 percent of the country’s international debt into the deal. It’s the final step in the restructuring and should allow the nation to emerge from its ninth default.

“In this case, with no capital haircut, it didn’t make any sense to stay out as a holdout,” said Joaquín Almeyra, a fixed income trader at Bulltick LLC in Miami. “Now with the new bonds we will see if there is any demand for Argentina risk.”

The new bonds will start trading after the September 4 deal settlement and may yield an average of 12 percent, according to analysts. Those premiums will be key in luring yield-hungry investors back to Argentina. Still, the nation will need to address a deep recession, high infection rates of Covid-19 and negotiations with International Monetary Fund.

Here’s what others are saying about the bond exchange:

More from Bulltick’s Almeyra:

– "Clearly the negotiation with the pricing of an exit yield of 10 percent is not the case. Those never were realistic numbers.”
– “This was only one step, but it’s not the solution. There’s a lot to do in order to try to get out of an extremely ugly reality. Even if they manage to get a deal with the IMF, with no economic plan and with the actual economic situation, its doesn’t look any good.”
– “I haven’t seen real demand for Argentina in a long time, and I don’t think we will see any in the short term. But this context of low interest rates everywhere might play in favour for Argentina and some investors can get greedy with yields of 13 percent.”

William Snead, an analyst at BBVA in New York

– “It’s important to know the details of the exchange and know who holds the one percent of the bonds that didn’t agree to the exchange”
– More details would be positive as “transparency creates trust with investors”

Alvaro Vivanco, head of Latin America strategy and macro analysis at NatWest Markets in Stamford:

– Acceptance rate is positive for Argentina, with 93.5 percent approval surpassing the threshold to trigger CACs
– Next key step will be the negotiations with the International Monetary Fund, “which will be much smoother now”
– “We are left with a sovereign with a lower debt burden within an environment in which there has been significant fiscal deterioration across countries, and very high global liquidity”
– “That leaves Argentina in a position to benefit from appetite for EM credit, as long as the credibility of the rest of the macro programme improves. It’s a great opportunity for the administration”

Patrick Esteruelas, head of research at Emso Asset Management in New York

– “Argentina’s cheap valuations relative to EM high yields and its minimal default risk over the next four years should support some further spread compression, although the low coupons on offer and the absence of a coherent long-term fiscal and monetary policy plan will limit those gains”
– “The government can claim to have secured heavily front-loaded FX savings, while bondholders succeeded in significantly raising the government’s original low-ball offer”

Carlos Abadi, a managing director at DecisionBoundaries LLC in New York

– “The one percent are crammed down by the collective-action clauses. There’s no way to hold out when acceptance is greater than 75 percent”
– While holders of lower priced bonds tend to do well in restructuring, it isn’t so in this case
– “It was a short-lived default, and the bonds weren’t accelerated. Therefore, the bonds were restructured in buckets given their original maturity. In general, holders of short-dated bonds did best because, although they got a bigger haircut, the bond they’re exchanging for had a much shorter duration”

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by Sydney Maki, Bloomberg

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