Argentina yesterday took a bold step towards normalizing relations with international capital markets, announcing that a deal with holders of up to $20 billion of defaulted debt is imminent.
Argentina aims to reach a deal with the holdouts (investors who rejected a previous deal) within two weeks, and will return to borrowing as soon as possible after that, senior officials told Emerging Markets.
Hernán Lorenzino, Argentina’s secretary of finance, said the nation might complete discussions with the Paris Club of sovereign lenders on $6.7 billion of outstanding debt before future issues. He would not discuss a time frame for Argentina’s return to the international market, saying that there are other funding options. But he told Emerging Markets: “We are very confident that we will be in a position to access international capital markets in the near future.”
Argentinian officials said yesterday that the US regulatory authorities had approved a new deal and that they expect to complete a deal with the holdouts within two weeks.
Lorenzino said last night: “I can’t assure you that immediately after this transaction is closed we will be in the market. Maybe there are other steps that we need to take, [...] for example [with the] Paris club.”
Lorenzino’s comments follow economy minister Amado Boudou’s assertion yesterday that there was “no turning back” with the debt swap.
“We are going ahead. We got the confirmation from the SEC. [...] We have entered the final stretch and there is no turning back,” Boudou told Emerging Markets. He said Argentina’s proposals had had “a really good reception” at a two-hour meeting with investors yesterday – and that approval was expected from Italian, Luxemburg and Japanese authorities early this week.
“Argentina has to deal with its issues and close this chapter which was really badly managed in 2001,” Boudou said.
An official who has been monitoring the talks said the proposal would include a new cash injection of between $1 billion to $1.4 billion from institutional bond holders. The source said Argentina may go ahead with the planned exchange without a prior agreement with the Paris Club or the IMF.
The country’s macroeconomic fundamentals would entice investors when the time comes to return to the international market, Lorenzino said. Argentina’s fundamentals over the last seven years “were absolutely remarkable,” he said.
“Argentina has six years of primary surplus, of trade surplus, foreign exchange administration. Argentina has robust macro fundamentals. [...] The numbers are pretty robust.
Opinion is divided among investors about the markets’ likely reactions to new issuance.
Some observers said yesterday that high returns, diversification strategies and a positive view of the country’s corporates would drive demand.
Mark Tuttle, managing director, head of Latin America debt capital markets at UBS, said: “There is a lot of money waiting to go into Argentina,” said Tuttle. “They also have a lot of financing needs.”
He added that he expected the provinces and top tier corporates to follow the Argentine sovereign into international debt markets.
Others were cautious. Paul McNamara, portfolio manager at Augustus Asset Management, said: “This SEC filing does not necessarily open up international markets to Argentina.
“There is a non-trivial pool of investors who have not participated in Argentina’s previous restructuring offer. There will be a significant amount of investors that won’t be happy about any proposed offer.” He added that previous debt restructurings had been scuppered by just 1% of debt holders.
Investors say Argentina will have to pay a higher coupon rate than the returns offered on its Boden bonds. A five-year bond issue of up to $1 billion might offer a coupon of up to 100bps above the 10.5% yield on Argentina’s 2015 Boden bonds, McNamara estimated.