Argentina extends deadline for creditors to agree to $65bn debt restructuring deal

Ninth sovereign default looms as initial deadline passes without agreement on terms

Pedestrians walk past posters on a Buenos Aires street urging Argentina to default on its debt and break with the IMF. Reuters

Argentina will extend negotiations over a $65 billion (Dh238.7bn) debt restructuring proposal until May 22, the government said on Monday, setting the stage for tense last-ditch talks as the South American nation races to avoid default.

The new deadline, which comes after an initial cut-off passed on Friday without the support needed for a comprehensive deal, means the offer will expire on the same day that Argentina could trigger default over a $500 million interest payment.

The major grains producer is racing to revamp unsustainable debts amid a painful recession, high inflation and increasingly expensive borrowing costs as concerns over a potential ninth sovereign default have rattled investors and hit bond prices.

The talks so far have been complex, with three major creditor groups rejecting the initial proposal and pushing for improved terms. Argentine officials have said the country cannot afford to pay more, though they are open to counterproposals.

"Clearly, both sides are playing hardball," Capital Economics said in a note on Monday, adding that the talks were likely to drag on and that creditors could face large haircuts, especially with the global coronavirus pandemic sapping growth.

"The government is facing ever-growing demands on its purse as the health crisis continues," it said. "Accordingly, recovery rates for foreign bondholders of around 30 per cent are looking increasingly likely."

Analysts calculate that the current offer, which includes a three-year payment halt, a large cut to coupon payments and maturities pushed back to 2030 and beyond amounts to a net present value of around 30-35 per cent.

Bondholders say this needs to be raised to gain support.

Argentina's Economy Ministry said in the official gazette that it had extended the deadline to "increase participation" after taking stock of the current offer. The government has not said what exact level of support that offer garnered.

"While many of our bondholders supported Argentina's invitation, other significant groups of creditors did not," the ministry said in a statement, adding that the government remained open to discussing the way forward.

"Among those that rejected Argentina's offer, several have indicated that there are better alternatives that can be reconciled with the objectives that this administration has set for itself and for the Argentine people."

The invitation closes on May 22 at 9.00pm GMT. The results of the offer will be announced around May 25 with a settlement date of May 27.

The bonds in question include collective action clauses, which means the government needs to meet a threshold of investor support in order to move ahead with comprehensive restructuring.

Argentina's bonds, which have fallen steeply since the middle of last year, are already trading at distressed levels, with most at around 25-30 cents on the dollar.

"While many of our bondholders supported Argentina's invitation, other significant groups of creditors did not"

Goldman Sachs said in a note that without a deal, it was likely Argentina would default on May 22, though it did not rule out payment if a deal looked close at hand. The investment bank noted the signs were that participation had been low.

"The absence of specific official information suggests that the initial acceptance rate may have been quite low," it said.

Two international bondholders involved in the talks said the level of acceptance was just over 12 per cent. Argentine media reported that local holders of the debt had been more receptive, which they said brought the total level to around 20 per cent.

Argentina's economy ministry and minister Martin Guzman declined to comment on the level of acceptance.

The country's largest province, Buenos Aires, is facing a separate debt crisis of its own, with an offer to holders of its foreign law bonds to restructure around $7 billion in debt that were due to expire yesterday.