Three largest creditor groups join forces in negotiations, rejecting government's "final" offer and submitting their own counter proposal.
Local markets rose this week amid hopes that the government and creditor groups will seal a deal to restructure more than US$66 billion of foreign debt.
Stocks climbed more than 15 percent this week, in what some analysts described as a purely Argentine rally, given that global markets had only a mediocre week.
"The chances that the government will reach an agreement with creditors have increased considerably," Camilo Cisera, a strategic analyst with the Cohen Financial Group, told local financial daily Ámbito Financiero on Friday.
Bloomberg News, quoting a roundtable of traders, said experts see the difference between the two parties as small, with high probability an agreement will be made, though not by the current August 4 deadline.
The rally comes on the back of a busy week of debt talks. On Monday, the three largest creditor groups joined forces to reject the government's self-described "final" offer and submit their own counter-proposal. Reports said it would provide more than US$35 billion in debt relief for Argentina over the next nine years.
The offer was swiftly rejected within hours by President Alberto Fernández, who told TV Pública after the groups’ statement was released that the country’s most recent offer was its best and final proposal.
“We want to act in good faith and find a solution,” said the Peronist leader. “We’ll continue discussing, but the truth is that we’ve made the offer that is possible.”
Adding their voice to calls, the so-called 'G6' group of Argentine business leaders (UIA, Chamber of Commerce, Banking Association, Rural Society, Chamber of Construction, Stock Exchange) issued a statement on Friday calling on bondholders to make a "final effort" to agree a deal with the government.
Argentina slid into its ninth default in May after missing an interest payment, forcing the government to renegotiate its foreign obligations with Wall Street creditors.
Too close to fail?
According to some analysts though, Argentina and its creditors may now be too close to a debt restructuring deal to fail.
“Despite the rhetoric from the government, the distance is very small now, and investors’ demands on the legal side are reasonable,” said Alejo Costa, chief Argentina strategist at BTG Pactual in Buenos Aires. “The rational outcome should be a deal.”
While Economy Minister Martín Guzmán says creditor groups misunderstand the country’s payment capacity, analysts saw the new offer as an opportunity for compromise.
Strategists from Goldman Sachs Inc and Morgan Stanley both see about a three cent on the dollar gap between the value of the combined creditor group’s proposal and the government’s offer. Assuming an exit yield of 10 percent, Argentina’s offer reflects 53.3 cents per dollar, while creditors are calling for 56.9 cents, according to Morgan Stanley.
“Both the creditors and the authorities appear to have drawn lines in the sand just a few inches apart,” wrote Goldman analysts including Tiago Severo in New York.
The sticking point may be political with the government boxing itself into a corner, said Joaquín Almeyra, a fixed income trader at Bulltick LLC in Miami. Still, the nation has more to lose from a protracted period of default, which may push them to strike a deal, he said.
“The bondholders already made their statement and showed that they are willing to help, but with limits,” Almeyra said. “It would be a mistake for Argentina if they do not give that final step.”
The president asked Argentina's creditors for “understanding” this week, as he reiterated that the offer on the table was the "last effort" the country could make.
During a videoconference event organised by the Council of the Americas, the Frente de Todos leader asked bondholders to recognise the challenges facing the country.
"I am very confident that the creditors understand that we are making an enormous effort and that this is the last one that we can do. I ask them, please, help Argentina to get out of prostration," said Fernández.
Argentina's last offer, issued under foreign law, was worth 53.5 cents on the dollar, a significant improvement on its original starting position of 39 cents. Having originally proposed a three-year grace period, the offer reduced that to one year, with repayments beginning in September 2021.
The three groups, however, dismiss the idea that there isn’t more room for negotiation. "Argentina's offer is short of what the creditor groups can accept," they said in a statement issued this week, adding that they would not meet the government's August 4 deadline to find an agreement.
They expressed confidence, however, that an "agreed solution" could be found that ensures "the future economic sustainability for the Argentine people."
The three groups – Ad Hoc group, the Exchange Bondholder group and the Argentina Creditor Committee – claim to represent a third of bondholders under foreign law involved in the restructure talks. That gives the groups veto power over any restructure deal, experts say.
The International Monetary Fund called on both sides to “continue working constructively” to reach agreement over the bond swap, though it said it had no input in the “bilateral” issue.
“As we have said before, in line with our longstanding norms, the negotiations are a bilateral question between Argentina and her creditors, that is the case for Argentina and that is the case in general,” pointed out IMF spokesman Gerry Rice.
He also clarified that the Alberto Fernández government had not asked for any kind of financial assistance “nor have the Argentine authorities requested an IMF programme at this stage,” he manifested in reference both to the possibility of completing remittance of the tranche pending from the stand-by agreement signed by the Mauricio Macri administration and to a possible new loan.
“We hope that all parties involved continue working constructively and with the objective of achieving in due course an agreement placing public debt on a sustainable path, setting the bases for sustained and inclusive growth,” indicated Rice.
Beyond the statements of its spokesman, the IMF follows with special attention the course of the negotiations because Argentina’s fiscal and financial conditions for paying its commitments to the organism will depend on the profile of this agreement, given that the IMF as a lender of last resort does not allow haircuts of any kind.