Investors brace for losses in Argentina debt talks

Investors brace for losses in Argentina debt talks

Creditors prepare for tough negotiations after IMF calls on them to share the pain

Investors are braced for acrimonious negotiations with Argentina and a possible default after the IMF backed a big haircut for creditors without urging the country to implement austerity measures.

Bondholders were alarmed when the IMF failed to demand that Argentina rein in its budget deficit. They feared that the fund was siding with President Alberto Fernández, whose government has insisted that it will only reach a balanced budget by 2023, with no reduction this year.

“The IMF is being too lenient,” said one international investor, who fears that the fund will not support private creditors’ attempts to convince Argentina to reach a “more stable fiscal position” that would enable debts to be repaid. “The only way we have left is by not participating in a debt deal.”

The IMF — which has lent Argentina $44bn as part of a record-setting $57bn bailout since a currency crisis in 2018 — backed Buenos Aires on Wednesday in a statement that deemed the country’s $100bn of foreign debt to be unpayable.

Although IMF officials had earlier insisted that the agency was legally prohibited from allowing a haircut on the money it is owed by Argentina, in response to demands by local authorities, it called for a “definitive” debt restructuring that would entail a “meaningful” haircut on private creditors’ bonds.

“How many times do [investors] need to be told? They were told by [Joseph] Stiglitz that they were going to be disappointed, and the market said we don't believe you,” said another international portfolio manager, referring to the Nobel laureate close to Argentina’s economy minister Martín Guzmán who warned recently that “significant haircuts” would be required.

“Then they were told by Fernández and Guzmán that they were going to be disappointed, and the bonds traded down just for one day and then went back up. And now this.”

Even so, the fund said at the end of what it called “very productive” week-long talks with government officials in Buenos Aires that it wanted a more detailed economic plan that explained how Argentina intended to repay its creditors, who have also been clamouring for clearer plans from the government. The statement also urged authorities to make a greater effort to reduce one of the world’s highest inflation rates.

“We are not surprised by the statement from the IMF but would have welcomed more analytical data . . . to see what gaps exist and how creditors can help bridge such gaps,” said Hans Humes, chief executive officer of Greylock Capital, which is leading one of the bondholder groups. “I think private creditors are willing to make concessions in the same fashion as the IMF.”

Mr Humes urged the government to hire a financial adviser to move forward with formal negotiations. Lazard and Rothschild & Co are among the firms under consideration by the government, according to people familiar with the matter.

“Argentina is not anywhere close to the situation as Greece was or frankly where Argentina was in 2001,” added Mr Humes. He noted that in the 2012 Greek restructuring — which was one of the largest in the history of sovereign debt crises — creditors accepted a 53.5 per cent haircut or loss on the face value of their debt. “It will only be if any of the stakeholders . . . mismanage the process.”

Several groups have formed in recent months in anticipation of a debt restructuring that Mr Guzmán has indicated he wants to complete by March 31. Greylock, T Rowe Price and GMO are among members of one group, while BlackRock, Fidelity and Pimco have co-ordinated their efforts with two other firms, according to people familiar with the matter.

A group advised by Dennis Hranitzky at law firm Quinn Emanuel Urquhart & Sullivan has also taken shape, according to people who spoke under the condition of anonymity, with hedge funds Monarch Alternative Capital and HBK Capital Management among roughly 20 other funds involved.

“Ultimately, whether or not Argentina defaults is going to be a political decision. The debt can be restructured easily,” said a senior official from the previous Argentine government. “The question is whether they do that, or whether they decide that even if they do, they won’t recover market access anyway, as some argue — so it would be better to default and not have to pay anything.”
 

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