Argentina has announced an improved offer to holders of $65bn of foreign debt, hoping to break a deadlock that has persisted since it defaulted in May.
The latest offer, Argentina’s fourth since the talks began earlier this year, would raise interest payments and cut losses on bondholders’ initial investments, as well as shorten the maturities on the new bonds.
In a radio interview on Sunday, President Alberto Fernández described the offer as the “maximum effort” that Argentina could make.
A person close to the negotiations on the government side said there are “zero chances of any amendment”, noting that “we have reached a point where anything more and we’d rather not have it”.
“This is definitive,” the person added. “If we give more it’s very, very doubtful that it could be sustainable – so it would hurt the credibility of what we are doing.”
The improved terms suggest a recovery value of roughly 53 cents on the dollar, according to analysts, an increase from the approximately 40 cents on the dollar recovery value of an earlier proposal.
Interest payments on the new bonds to be swapped for old debt will begin in 2021, a year earlier than in the government’s last offer, and their maturities will stretch until 2046. Holders of bonds issued in 2005 will be able to keep their stronger legal protections, and accrued interest will be covered in a bond due 2030. Creditors have until August 4 to accept the terms.
A successful deal hinges on the support of the two biggest bondholder groups, which comprise holders of bonds issued after 2016 and previously restructured so-called exchange bonds issued in 2005 and 2010. The older bonds require a higher approval rate for a successful restructuring.
Together, the two groups — which include BlackRock, Fidelity, T Rowe Price, VR Capital Group and Monarch Alternative Capital — could block a deal as they own 35 per cent of the total outstanding bonds.
One bondholder from one of the largest groups said he doubted the offer would attract sufficient support from creditors. But another said the government's offer was an “encouraging” sign, stating that the two sides “are not too far away now” on the terms.
Robert Koenigsberger, chief investment officer at Gramercy Funds Management, encouraged fellow bondholders to accept the improved offer. "Does [a creditor] want to be a holdout in the Covid-19 era over a couple of points?" he said.
Siobhan Morden, head of Latin American fixed income at broker Amherst Pierpont, said it was a “high risk strategy” for the government to proceed without the explicit backing of those groups. But she believes there will be significant pressure for the creditors to accept a proposal that is seen as a “considerable improvement from where Argentina started a few months ago".
Talks had been close to collapse and last Tuesday, the two largest groups complained of a “lack of serious engagement” from the Argentine authorities and said there had been no meaningful talks since June 17.
The IMF, which lent $44bn to Mr Fernández’s predecessor Mauricio Macri in a failed attempt to stabilise the economy, has backed Mr Fernández so far. It has published analysis suggesting that Argentina’s debt burden is unsustainable and that it cannot afford to pay creditors much more than it is currently offering.
Argentina’s default in May was the ninth in the country’s history and comes during one of the world’s longest and strictest lockdowns to combat coronavirus.
Get alerts on Argentina when a new story is published