$100 Billion Restructuring Plan In Argentina Divides Creditors


The main creditors of Argentina gave a cool reception on Thursday to President Mauricio Macri’s plan to delay payments on more than $101bn of debt, while accepting that it should alleviate some of the country’s immediate funding pressures. On Wednesday evening, Buenos Aires announced it will postpone paying $7bn of short-term local debt for up to six months while pursuing a “voluntary reprofiling” of $50bn of longer-dated debt, the majority of which is owned by foreign investors.

The government also said it plans to delay the repayment of $44bn of loans already disbursed by the IMF. Argentine bonds plummeted to record lows on the news, with the once-popular “century bond” maturing in 2117 falling nearly 5 per cent to 41 cents on the dollar. The shorter-dated dollar debt coming due in 2021 fell below 50 cents on the dollar, pushing its yield to nearly 60 per cent.

Investors said the move to force holders of the short-term local debt to collect their payments at a later date was a positive one, given that the government has some $30bn in debt falling due this year alone, according to Capital Economics. “It is a step towards trying to resolve what is a highly complicated situation,” said Shamaila Khan, the head of emerging market debt strategies at AllianceBernstein. “It kick-starts a process that needed to get done.” According to Jan Dehn, head of research at Ashmore, the announcement was “very good news,” given that Argentina’s stock of net foreign reserves is quickly dwindling at an estimated $10bn. “What this does is dramatically reduce their liquidity issue,” said Mr Dehn, who recently snapped up more of the country’s debt following the recent market turmoil sparked by the surprise victory of Peronist Alberto Fernández in the recent primary election. “This significantly reduces default risk and is extremely positive for the bonds.” However other investors were less sanguine.

For Federico Kaune at UBS Global Asset Management, there remain too many unknowns, not least given that any deal with foreign investors is likely to be in the hands of Mr Fernández, who has offered little clarity as to which economic policies he will pursue. He has also provided little guidance on how stringently he will stick to the austerity programme initiated by Mr Macri, and what relationship he seeks to have with the IMF.

“This has to be a comprehensive programme and this piecemeal approach doesn’t provide us with enough information to make a decision,” Mr Kaune said. “It is difficult to see how they will adjust the timelines and how locals will respond,” he added, noting that the forced restructuring is likely to bring back memories of the early 2000s when Argentina defaulted on more than $100bn of debt.

Getting a deal through parliament for some of the local debt will be difficult, said Edwin Gutierrez, the head of emerging-market sovereign debt at Aberdeen Asset Management. But coming to an agreement with foreign investors could be trickier still. “Argentina is not illiquid; it is insolvent,” he said, noting that the country’s debt has ballooned to nearly 100 per cent of GDP and is unlikely to come down anytime soon, given that its record on growth is “appalling”. As such, Mr Gutierrez said there is little incentive for foreign investors to accept repayment at a later date especially if the terms are agreed upon with Mr Macri, who has little chance of remaining in office following the election proper in October. “Are you really going to play ball with an outgoing lame duck president in order to face his successor with all the uncertainty that surrounds him?” Mr Gutierrez asked.