Argentina extends $65 billion debt deadline as 'hardball' talks stoke risk of default

Argentina extends $65 billion debt deadline as 'hardball' talks stoke risk of default

Argentina will extend negotiations over a $65 billion debt restructuring proposal until May 22, the government said on Monday, setting the stage for tense last-ditch talks as the South American nation races to avoid default.

The new deadline, which comes after an initial cut-off passed on Friday without the support needed for a comprehensive deal, means the offer will expire the same day Argentina could trigger default over a $500 million interest payment.

The major grains producer is racing to revamp unsustainable debts amid a painful recession, high inflation, and increasingly expensive borrowing costs, as concerns over a potential ninth sovereign default have rattled investors and hit bond prices.

The talks so far have been complex, with three major creditor groups rejecting the initial proposal and pushing for improved terms. Argentine officials have said the country cannot afford to pay more, though they are open to counterproposals.

Analysts calculate that the current offer, which includes a three-year payment halt, a large cut to coupon payments, and maturities pushed back to 2030 and beyond, amounts to a net present value of around 30-35%.

Two international bondholders involved in the talks said the level of acceptance was just over 12%. Argentine media reported that local holders of the debt had been more receptive, which they said brought the total level to around 20%.

Argentina’s economy ministry declined to comment on the level of acceptance.

“Clearly, both sides are playing hardball,” Capital Economics said in a note, adding that the situation was complicated by the global coronavirus pandemic.

“The government is facing ever-growing demands on its purse as the health crisis continues,” it said. “Accordingly, recovery rates for foreign bondholders of around 30% are looking increasingly likely.”

DISTRESSED LEVELS
Argentina’s economy ministry said in the official gazette that it had extended the deadline to “increase participation.”

“While many of our bondholders supported Argentina’s invitation, other significant groups of creditors did not,” the ministry said in a statement, adding that the government remained open to discussing the way forward.

“Among those that rejected Argentina’s offer, several have indicated that there are better alternatives that can be reconciled with the objectives that this administration has set for itself and for the Argentine people.”

The invitation closes on May 22 at 5 p.m. New York time (2100 GMT). The results of the offer will be announced around May 25, with a settlement date of May 27.

The bonds in question include collective action clauses, which means the government needs to meet a threshold of investor support in order to move ahead with comprehensive restructuring.

Argentina’s bonds, which have fallen steeply since the middle of last year, are already at distressed levels, with most around 25-30 cents on the dollar. The country’s bonds have edged up in recent days and closed 2.3% higher on average on Monday.

Goldman Sachs said in a note that without a deal, it was likely Argentina would default on May 22.

“The absence of specific official information suggests that the initial acceptance rate may have been quite low,” it said.

The country’s largest province, Buenos Aires, facing a separate debt crisis, extended until May 26 its own offer to creditors for a restructuring proposal for around $7 billion in debt after a deadline passed on Monday.

A major creditor group has already rejected the proposal from the province.

Siobhan Morden at Amherst Pierpont said the Buenos Aires talks could give a clue to how national negotiations would go, providing “a leading indicator for the sovereign since the two credits are aligned on their political strategy.”

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