Talks over restructuring US$65 billion of Argentine debt have hit a wall as the two sides struggle to overcome the final hurdles to an agreement.
After edging closer over the previous month of negotiations, four sticking points are keeping the government and its creditors apart ahead of the July 24 deadline for an accord.
Here are those points of contention:
Bond value
Argentina’s latest proposal would begin coupon payments of 0.125 percent as soon as next year, and would reduce the nominal haircut on all bonds to three percent, from five percent and seven percent in previous proposals. The country wouldn’t begin paying back principal until 2025.
The Exchange Bondholder group and the Ad Hoc group, which includes heavy hitters like BlackRock Inc, Ashmore Plc and Fidelity Investments, want coupon payments on new dollar-denominated bonds to start next year at 0.75 percent and don’t propose any significant haircut on the principal.
The creditors’ proposal represents more than US$40 billion in debt relief over the next nine years, according to documents released by the government. The two plans are only US$1.2 billion apart in payments over the next four years, said two creditors directly involved in the talks.
Economy Minister Martín Guzmán said Tuesday Argentina has reached “more understanding” with another group called the Argentina Creditor Committee, which proposes US$40 billion in debt relief until 2028 and would include a one percent haircut on global bonds.
Accrued interest
The government’s proposal suggests accrued interest be paid to creditors in a bond that matures in 2030 with a one percent interest rate beginning 2021. Argentina would begin paying back the principal on that bond starting in 2026. The Argentina Creditor Committee’s proposal would treat the accrued interest similarly.
However, the Ad Hoc and Exchange bondholder groups are calling for half of the accumulating interest to be paid in cash on the settlement date, and the other half to be paid through a new dollar bond maturing in 2023 that would start making payouts in January 2021 at a four percent rate, the documents show.
The new contracts
The Ad Hoc group is pushing the government to issue all new bonds under the legal terms written into the country’s 2005 restructuring. Argentina has said it’s willing to keep those conditions for creditors who already hold bonds under the 2005 contracts, but that it can’t commit to doing that for bonds issued after 2016.
Securities issued under the 2005 bond contracts require at least 85 percent of bondholders to sign off on any new restructuring, versus the two-thirds or 75 percent threshold on securities issued more recently.
Another proposal, made by the Argentina Creditor Committee, Fintech Advisory Inc and Gramercy Funds Management, would keep the bonds’ original legal terms in the swap.
The sweetener
Finally, creditors and the government are at odds over how to restructure a new security that would make a debt swap more appetising to bondholders.
The Ad Hoc and Exchange groups are proposing a sweetener tied to Argentina’s gross domestic product for creditors who accept the new 2036, 2038 and 2045 bonds. The nominal GDP would be calculated by the International Monetary Fund.
But Argentina had a dispute over a previous version of the growth-linked securities, known as GDP warrants. Ex-president Cristina Fernández de Kirchner’s government was accused of publishing manipulated GDP statistics data to halt payments on notes that had proved lucrative for investors.
This time, Argentina is proposing a sweetener based on exports that would pay an annual extra coupon of up to 0.75 percent from 2026 to 2046, when payment conditions are met. The country would use export data from the tax agency AFIP. The Argentina Creditor Committee is also proposing a sweetener based on export data.
“In theory it’s quite attractive,” said Siobhan Morden, head of Latin American fixed income strategy at Amherst Pierpont Securities. “In practice, they suffer from the data manipulation risks and legal risks.”
by Scott Squires, Bloomberg
Comments