Argentina regains its breath thanks to crucial debt deal: for now

BUENOS AIRES / NEW YORK (Reuters) – Argentina has found its breath after restructuring nearly all of the $ 65 billion in foreign bonds, though it now faces a huge challenge to kick-start growth and repair public finances before the oxygen runs out.

Argentine President Alberto Fernandez (R), Vice President Cristina Fernandez de Kirchner and Economy Minister Martin Guzman attend a press conference to give details on the deal with major private creditors to restructure sovereign debt of Argentina, at the Presidential Palace Casa Rosada, in Buenos Aires, Argentina August 31, 2020. Juan Mabromata / Pool via REUTERS

The South American grain producer said on Monday it had restructured 99% of qualifying bonds in its debt deal after nearly all bond holders pledged, a major victory for the mired Argentina in recession and default.

The country has also converted $ 8 billion in local dollar debt through voluntary swaps and is near the finish line to restructure more than $ 40 billion in local law dollar borrowings.

“Taken together, these deals will give the government much needed respite as it tackles the devastating fallout from the coronavirus crisis,” Capital Economics’ Nikhil Sanghani said in a post-deal memo.

He added, however, that Argentina’s dollar debt remained high and the risk of another default would increase over time, especially with low reserves, downward pressure on the peso and stubborn inflation.

“The bottom line is that Argentina’s public debt is no longer a short-term concern. But he’s likely to show his ugly face within a few years, ”Sanghani said.

First on the agenda will be the swap of local-law dollar debt, sorting out provincial debt restructurings, and attention to negotiating a new deal with the International Monetary Fund to replace a facility. of $ 57 billion in failure as of 2018.

The government is also expected to present its budget for 2021 this month, which will give an idea of ​​its plan to revive an economy likely to contract by about 12.5% ​​this year, the third consecutive year of recession.

“It’s up to Argentina, in the current administration, to come up with a program that will boost the growth of their country, and it’s going to be difficult,” said Eric Baurmeister, senior portfolio manager at Morgan Stanley Investment Management and head of its the debt markets team.


Without a clear economic agenda, Baurmeister said, yields on the country’s new sovereign bonds, which are expected to be issued on September 4, will be high, given the perception of risk.

“The yields will be high, they will effectively be excluded from foreign markets for a very long time,” he added.

Investors look at the output yield of new bonds when they start trading, which people say is between 10% and 12%.

Argentina bonds, which collapsed last year, have soared in recent days in limited trading, with most of those involved in the restructuring hovering between 40 and 50 cents on the dollar. The offer had an average valuation of 54.8 cents at an exit yield of 10%.

The deal also opens the door for Argentina to escape its ninth sovereign default after missing a bond payment in May, although rating agencies have said they are watching what happens with local restructuring.

“We are awaiting the results of the two debt exchanges, external and local, to assess whether Argentina has remedied its default and what its exit rating will be,” said Todd Martinez, director of Latin American sovereigns at Fitch. Ratings.

Lisa Schineller of S&P said the agency may move forward on the issue of default and ratings once new bonds are issued and local-law debt is resolved.

“Once the settlement is done, we could raise the issuer’s credit ratings and assign new credit ratings to the bonds,” she said, adding that these tended to be grade B- or CCC.

“We will have to look at the new profile, the new political position. The perception that there was more risk would keep it more in a CCC category, ”she added.

Reporting by Cassandra Garrison and Rodrigo Campos; Additional reports by Marc Jones; Editing by Adam Jourdan and Dan Grebler

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