Buenos Aires province closes in on deal with bondholders

Buenos Aires province closes in on deal with bondholders

Revised terms draw support from some creditors in key test before government debt crunch

 

The province of Buenos Aires has broken through an impasse with a group of its bondholders, inching closer to avoiding a messy default over an overdue payment and helping the national government press on with the restructuring of more than $100bn of debt it is struggling to repay.

Negotiations between the province and its bondholders broke down last week, but on Monday, the government sweetened the terms it would offer, just days before the already extended deadline was set to expire. A formal agreement has not yet been reached, but one group of bondholders agreed to accept late payments, and has urged other creditors to support the deal.

In a statement, the province of Buenos Aires proposed to pay 30 per cent of the $250m capital that was due on January 26, in light of what it said was the “goodwill and understanding” demonstrated by a “great number” of bondholders that have yet to accept the offer.

If 75 per cent of creditors formally accept the offer, that $75m will be paid within a grace period, followed by a smaller interest payment and then the bulk of outstanding capital in May. Bondholders have until 10am Brussels time on February 4 to accept or reject the proposal.

Investors see the tussle over Buenos Aires’ provincial debt as a litmus test for the eventual restructuring of country’s government debt, especially as many of the same bondholders are involved in each set of bonds. The national government said it wanted to finalise the terms of a sovereign deal by March 31 — a deadline that one person affiliated with one of the sovereign bondholder groups described as “pie in the sky” given the complexity of the situation.

It is still not certain that the provincial government will be able to secure a deal before Wednesday’s deadline, however. Axel Kicillof, governor of the province of Buenos Aires, told local media on Monday that the support of the most important creditor group for the Buenos Aires debt had been secured, but added that some funds with “complicated positions” have yet to be won over.

“In particular there is one fund with a very significant amount [of bonds] that is not demonstrating the same degree of agreement,” he said.

Pablo López, the province’s finance minister, said in a statement: “This effort will be made with provincial resources, which are scarce. Therefore, the province reaffirms its commitment to solving the debt problem, in order to recover sustainability, in a swift and orderly fashion.

“We must advance in solving the most urgent issues and devote all our effort to reactivating the provincial economy.”

Argentina’s president Alberto Fernández is due to meet Germany’s chancellor Angela Merkel on Monday, and France’s president Emmanuel Macron on Wednesday, in an effort to gather international support for negotiations over the government bonds. In particular, the country is hoping for backing from the IMF, which extended the country a record $57bn bailout in 2018.

At the same time, the country’s finance minister, Martín Guzmán, is due to meet the IMF’s new managing director, Kristalina Georgieva, in Rome at a conference hosted by the Vatican.

 

Colby Smith in New York and Benedict Mander

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