May 15, 2020 / 9:36 PM / 15 days ago

Argentina's creditors make counter offers as debt restructuring deadline nears

BUENOS AIRES/NEW YORK (Reuters) - Argentina received three new counter-offers from creditors late on Friday as the South American nation races to strike a deal to restructure $65 billion in foreign debt and avoid a default by the deadline at the end of next week.

The Economy Ministry said in a statement it was analyzing the offers and “their implications for ...restoring the sustainability of public debt.”

Argentina, a top global grains producer, says its debt has become unsustainable after two years of biting recession that is set to deepen this year with the impact of the coronavirus pandemic.

The counter-proposal from the Argentina Creditor Committee, Fintech Advisory and Gramercy Funds Management, together one of the country´s largest creditors, “respects...the current economic conditions in Argentina,” the group said in a statement.

It said it has offered Argentina substantial cash-flow relief by a combination of an interest holiday, decreases in coupon payments and deferral of amortization payments.

The government said Friday night the offers were proof that the country and its creditors “continue constructive dialogue.”

Continuing talks, flexibility by officials and a recent deadline extension have raised slim hopes a deal could be struck in time, helping keep the country from slipping into a ninth sovereign default.

Economy Minister Martin Guzman struck a positive tone earlier Friday in a virtual conference, though he acknowledged Argentina’s troubled history of defaults.

“Argentina has a turbulent history which damaged the relationship with investors many times,” he said. “That’s what we want to change.”

Over-the-counter bonds RPLATC jumped an average 6.4% on Friday even before the counter-offers hit, taking the rise to over 10% for the week after the government of center-left Peronist Alberto Fernandez earlier extended the deadline for a deal to May 22 after an initial cutoff passed without it gaining sufficient support.

DEFAULT INEVITABLE?

The ball now appears to be in the court of bondholders.

“With the extension of the deadline, it’s the creditors’ turn to present improvements in the offer details that may or may not be accepted by the government,” local brokerage Portfolio Personal Inversiones said in a note.

Argentina’s original offer - including a three-year payment halt, a large coupon reduction and maturities being pushed to 2030 and beyond - got firmly knocked back by major creditor groups, which say the country can pay more.

The national government is also facing the end of a grace period on May 22 to pay around $500 million in interest payments on bonds included in the restructuring, which could trigger a default if payment is not made and a deal is not struck.

“The default next Friday appears almost inevitable,” said Siobhan Morden, head of Latin America fixed-income strategy at Amherst Pierpont Securities, adding that Argentina needed to come up with a “credible offer.”

“All defaults are unique. Argentina cannot choose a path of inward isolation like they did in the 2000s. The externals aren’t as favorable and they have no growth and no liquidity,” she added, referring to a major default in 2001.

Argentina’s black market peso also fell on Friday, taking it even further from the official spot rate. The two rates are more than 100% apart, with the large gap being driven by strict capital controls, low real interest rates and inflation.

Reporting by Walter Bianchi and Cassandra Garrison in Buenos Aires and Rodrigo Campos in New York; Writing by Adam Jourdan and Dave Sherwood; Editing by Daniel Wallis and Leslie Adler

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