BUENOS AIRES / NEW YORK (Reuters) – Argentina regained room for manoeuvre after restructuring nearly all of its $65 billion in foreign bonds, now facing a huge challenge to revive expansion and fix public finances before oxygen runs out.
The South American grain maker said Monday it had restructured 99% of the eligible bonds in its debt deal after all bondholders rallied, a primary victory for Argentina, which is mired in recession and default.
The country has also exchanged more than $8 billion in debt in voluntary exchanges in local dollars and is close to the final line to restructure more than $40 billion in local dollar loans.
“Taken together, these agreements will give much-needed respite to address the devastating consequences of the coronavirus crisis,” Nikhil Sanghani of Capital Economics said in a post-agreement memorandum.
However, he added that Argentina’s dollar debt remained high and that the threat of default would accumulate over time, i. e. with low reserves, down pressure on weight, and persistent inflation.
“The downside is that Argentina’s public debt is no longer a short-term concern. But chances are he’ll raise his ugly head in a few years,” Sanghani said.
The first on the schedule will be the exchange of debt in local dollars, the resolution of provincial debt restructurings and the negotiation of a new agreement with the International Monetary Fund to update a $57 billion line of credit that has failed since 2018.
The government is also expected to provide its budget for 2021 this month, which will give a concept of its plan to revive an economy likely to contract around 12. 5% this year, the third consecutive year of recession.
“It’s up to Argentina, the current administration, to devise a program that drives the expansion of their country, and it will be difficult,” said Eric Baurmeister, senior portfolio manager at Morgan Stanley Investment Management and head of his market debt team. .
MARKET CLOSURES
Without a transparent economic agenda, Baurmeister said, yields on the country’s new sovereign bonds, to be issued on September 4, will be high, given the risk belief.
“Yields will be high, they will be excluded from external markets for a long time,” he added.
Investors watch the exit performance of the new bonds when they begin trading, which according to other people would be between 10% and 12%.
Argentine bonds, which collapsed last year, have risen in recent days in a tight market, with a maximum of those affected in the restructuring that soared between 40 and 50 cents in line with the dollar. 10% yield.
The agreement also opens the door for Argentina to escape its ninth sovereign default after not paying a bond in May, rating agencies said they were tracking what happened to the local restructuring.
“We are waiting for the effects of the two foreign and local debt redemptions to assess that Argentina has remedied its default and what its exit score will be,” said Todd Martinez, Director of Latin American Sovereigns at Fitch Ratings.
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“When the deal is resolved, we can simply increase the issuer’s credit ratings and assign new credit ratings to the bonds,” he said, adding that they tended to be Category B or CCC.
“We’d have to take a look at the new profile, the new policy orientation. The belief that there were higher hazards would keep it more in a CCC category,” he added.
(Information through Cassandra Garrison and Rodrigo Campos; Additional information through Marc Jones; Edited through Adam Jourdan and Dan Grebler)
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