At long last Argentina finally restructured ~USD 65bn of foreign bonds and USD 40bn in foreign currency debt last week, just in the nick of time to avoid a structural default. After more than four months of negotiations with the nation’s largest investors, LatAm’s third largest economy finally agreed to issue new overseas bonds, replacing those bonds which had been in “structural default” since May. Although bondholders only received ~55 cents on the dollar, it was attractive enough for 99% of creditors to accept the government’s terms.
With a sigh of relief President Alberto Fernández said: “May we never again enter this labyrinth [of indebtedness], please”. Adding, “Know that in 10 years’ time, in 2030, Argentina will owe $38bn less than what we owed last year. None of this was easy, but if there’s something Argentines know how to do, it is to pick ourselves up when we fall. Today we are standing, and on the move”. Bloomberg reports that Economic Minister Martin Guzman said that Argentina will look to reduce the bond yields through consistent macroeconomic management, and will not return to international debt markets for some time. He added that the other 1% of debt which was not included in the deal would be dealt with separately with European bondholders.
As a result of the “successful” restructuring, S&P yesterday upgraded its rating for the country to CCC+, stable outlook, from SD, as the country managed to avoid its ninth structural default. The rating agency cited the end of “complex” foreign and local debt restructurings, adding, "This important step forward provides the opportunity for the government to articulate a broader plan to tackle various post-pandemic macroeconomic challenges".
The bonds will start trading today, and investors are expected to pick up some very attractive yields which are touted to be the highest amongst non-distressed EM sovereign issuers, according to Bloomberg. We have never held Argentinian debt due to the nation’s shaky economic fundamentals, however, it will be interesting to see just how many investors pile into these high yielders over the coming days. At this stage in the economic cycle we prefer to hold sovereign and quasi-sovereign bonds from wealthy, highly-rated nations.
Faced with a ~12% contraction this year and a 42% inflation rate, Argentina is not out of the woods yet and it will now turn its focus to negotiations with the IMF to replace the USD57bn “canceled and derailed 2018 stand-by arrangement.” Moreover, policy makers will need to work on a more credible monetary policy plan and a way to deal with the ~8% fiscal deficit.