Argentina’s creditors discuss Macri debt plan
New York - Some of Argentina’s largest international creditors, including T Rowe Price, Eaton Vance and GMO, held informal discussions this week on how to respond to President Mauricio Macri’s plan to delay payment on $101bn of debts — concluding that negotiations with a lame duck government would be futile.
Mr Macri is seeking a “voluntary reprofiling” of $50bn of longer-term debt, held mostly by foreign investors, and $44bn of loans already disbursed by the IMF from its record-breaking $57bn bailout agreed just last year. The government has already postponed $7bn of payments on short-term local debt.
Argentina’s current crisis was triggered by a primary vote that indicated Mr Macri is likely to lose the upcoming election in October.
Bondholders convened a call on Tuesday and discussed strategies, reaching a consensus that any debt deal is likely to be defunct unless it gets buy-in from new presidential frontrunner Alberto Fernández, according to a participant on the call. In addition, the Macri government has not yet reached out with any kind of restructuring proposal.
The creditors determined it makes little sense to initiate negotiations just yet nor to band together in a formalised committee with legal representation.
Instead, during what one investor called a “wait-and-see” mode, bondholders are focusing on establishing channels of communication with the Fernández team and engaging directly with the IMF — all the while sharing notes among themselves.
“We have no clarity,” said one creditor who spoke under the condition of anonymity. “Taking a stance at this point is stupid.”
While the bondholders are not ready to organise at the moment, they stressed Mr Macri’s plan to deal with the country’s short-term local debt is unlikely to provide much more than fleeting relief.
“Pushing the bonds out six months doesn’t really solve anything,” said Mike Conelius, a portfolio manager at T Rowe Price who was on Tuesday’s call, adding that the ideal situation would be one in which the Macri and Fernández teams throw their support behind a more sweeping plan. “What has been contemplated so far locally is very short-term and it needs to be much more comprehensive.”
GMO and Eaton Vance declined to comment.
In the weeks since Mr Macri had his presidential hopes dashed, Mr Fernández has been tight-lipped about his economic plan and what relationship he seeks to have with the IMF. Argentine assets have suffered under the weight of this uncertainty, with many of the country’s dollar-denominated bonds now trading about 40 cents on the dollar. A double-digit plunge in the peso against the US dollar forced the government to enact a series of emergency measures, including currency controls.
The market chaos and the government’s announcement of a debt “reprofiling” led the rating agencies Standard & Poor’s and Fitch Ratings to issue “selective default” and “restricted default” ratings, respectively. Those default designations were soon lifted, however, because the government immediately delayed by presidential decree the payments it owed on its short-term bonds.
Given the country is not yet in default on its external debts and there remains a political vacuum ahead of the election in October, the bondholders underscored it may be some time before real progress can be made.
“Markets are going to need specifics in order to move forward in any meaningful way,” said one creditor.