Wall Street Slams Argentina Offer as Formal Negotiations Begin

Wall Street Slams Argentina Offer as Formal Negotiations Begin

13:03 - Analysts see room for improvement in nation’s initial proposal. Plan includes payment freeze until 2023, steep cut in interest.

Wall Street analysts said Argentina’s debt restructuring proposal is an aggressive opening salvo that still needs plenty of tinkering to secure the approval of bondholders.

Argentina’s offer, unveiled Friday, would halt payments on about $66 billion of foreign debt until 2023 and cut interest rates.

Bondholders would exchange their securities for new ones with interest rates that start at zero and gradually increase, creating an average rate of 2.33% -- well below what’s typical for emerging-market debt. The haircut on principal is relatively small at just $3.6 billion, while the cut on interest obligations totals $37.9 billion.

Argentina’s three major creditor groups have rejected the initial proposal. One called the plan “unacceptable,” while another said the plan put a “disproportionate share” of the nation’s adjustment efforts on the shoulders of international bondholders. The groups didn’t give specifics of where the offer fell short or what they’d like instead.

The early criticism signals a difficult road ahead as Argentina seeks a deal with creditors, some of whom loaned billions of dollars to the country just a few years ago amid a promise of rebirth in South America’s second-largest economy.

Here’s what Wall Street analysts are saying:

Alberto Ramos, chief Latin America economist at Goldman Sachs:

Key question is whether the parties can reduce the gulf sufficiently in coming weeks to pave the way for a deal before May 22, when a 30-day grace period expires on $500m in payments due April 22
Government may change parameters of the initial proposal somewhat in attempt to sweeten the deal, but unlikely to move meaningfully from its initial position
“Argentina may formally enter its ninth default”
Gabriel Torres, senior credit officer at Moody’s Investor Services:

Argentina’s foreign currency obligations, include market debt under local and foreign law and with the IMF, will continue to be significant, exceeding $100 billion
“Given its still-high debt levels, Argentina will have to develop a viable medium-term fiscal and economic plan to be able to return to the markets once the grace period for debt repayment ends”
William Snead, fixed income strategist at BBVA in New York

New bonds provide very little upside over current prices
While the proposal lays groundwork for the start of the negotiation process, talks are likely to be complex
“The lack of a clear upside to entice investors to tender their bonds in the exchange might likely push the government and bondholders to the negotiating table with the risk of it becoming a long and complex process at the same time that bonds’ obligation come due”.

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