By Ryan Dube and Andrew Scurria
Argentina's government is finalizing an agreement with a group
led by BlackRock Inc. and a handful of large U.S. investment firms
to restructure about $65 billion in foreign debt and resolve the
country's third sovereign default in 20 years, said people involved
in the talks.
Committees representing investors holding the bulk of
Argentina's external debt have agreed to exchange their defaulted
bonds for new securities under a settlement worth nearly 55 cents
on the dollar, these people said.
If signed, the deal would avoid the fiery litigation that marked
Argentina's 2001 default while supplying a much-needed boost for
Latin America's third-largest economy after it was laid low in
2018. The settlement would add to concessions made by private
lenders in the U.S. and other large economies to borrowers in the
developing world facing an economic downturn intensified by the new
Many creditors that bet on an Argentine economic resurgence in
recent years lost money when the government took steps toward
restructuring and bonds plummeted in value. But some investors
bought in at depressed prices and stand to make profits on the
restructuring, people familiar with the matter said.
Major Argentine bondholders include Fidelity Management &
Research Co., Monarch Alternative Capital LP, VR Capital Group,
Greylock Capital Management and Pharo Management LLC.
"It prevents a really disastrous impasse that could have locked
Argentina out of credit markets potentially for years," said
Benjamin Gedan, an Argentina expert at the Wilson Center, a
Washington policy group. "This scenario of a prolonged dispute that
would have left Argentina once again isolated financially would
have been a worst-case scenario for everyone involved."
The creditors accepted a deal ahead of a Tuesday deadline set by
the government. Economy Minister Martín Guzmán had said the
government wouldn't improve its offer and would start talks with
the International Monetary Fund on refinancing a bailout loan if
there wasn't a deal with bondholders.
Officials at the Economy Ministry and president's office said
Monday they couldn't confirm an agreement had been reached.
Argentina owes $44 billion to the IMF, which has said the country's
debts are unsustainable and projected a nearly 10% economic
contraction this year.
Economic contraction, spiraling inflation, a hard-currency
squeeze combined with the coronavirus pandemic made Argentina the
largest of several sovereigns to seek concessions from creditors
this year, joining Ecuador and Lebanon as lockdowns and travel
restrictions roiled the global economy.
Slashing the country's debts has been a priority for President
Alberto Fernández, a member of the nationalist Peronist movement
who took office in December. The country has been mired in a
recession since a 2018 currency crisis while facing double-digit
Argentina has spent the bulk of the last two decades quarreling
with investors after it stopped payment in 2001 on more than $80
billion in debt, the largest default in history by a sovereign at
the time. Most bondholders settled for roughly 30 cents on the
dollar while a minority battled for full repayment, eventually
winning U.S. court rulings that led to another default in 2014
before a settlement in 2016 that delivered enormous gains to the
few determined holdouts.
Debt markets soon welcomed the country back, gobbling up
100-year bonds, the first such issuance of so-called century bonds
by a junk-rated government.
Last year's election of Mr. Fernández fueled concerns about a
prolonged dispute with creditors after he announced plans to
restructure tens of billions of dollars in debt he inherited from
his predecessor, Mauricio Macri.
Mr. Fernández's powerful vice president, Cristina Kirchner, who
governed from 2007 to 2015, often blamed Argentina's economic
troubles on the IMF and foreign creditors, which her government
referred to as "vulture funds." But Mr. Fernández, a more moderate
Peronist, was more willing to sit down with creditors, analysts
Argentina's dire economic outlook, worsened by a pandemic that
has caused a surge in poverty in the vast working-class
neighborhoods that surround Buenos Aires, likely helped the two
sides reach a deal, said Nicolás Saldias, a political analyst and
expert on Argentina.
"I think there certainly was a role played by Covid-19 in
reducing the expectations of creditors of what is reasonable and
what is acceptable almost morally in this context," said Mr.
Saldias. "For the creditors, it would look bad if you are asking in
the middle of the worst economic recession since the Great
Depression and a pandemic which is killing hundreds of people...in
the country for an exorbitant amount of money."
Negotiations were difficult at times, reflecting disagreements
among bondholders over the size of discount they were willing to
take. Differences reflected factors including the different prices
at which various creditors purchased Argentine bonds.
BlackRock sought earlier this year to broker a deal but faced
resistance from certain creditors. Throughout the process,
bondholders were aware that they were the subject of critiques in
the local press and from economists that they were taking advantage
of Argentina. Over the weekend, creditor groups started to coalesce
around a deal. They felt reaching agreement quickly was preferable
in light of the economic damage wrought by the pandemic, two people
said. Some believed the IMF would be less willing to be generous to
creditors if the spread of Covid-19 hurt the Argentine economy
Argentina could now face more difficult talks with the IMF over
restructuring its bailout from the fund, which will likely pressure
the government to pass economic reforms that are unpopular in the
country and opposed by the ruling Peronists.
"It is going to be really politically dangerous in Argentina,"
said Mr. Saldias. "The IMF's board is not just going to roll over
and give Argentina whatever it wants."
--Alexander Gladstone and Dawn Lim contributed to this
Write to Ryan Dube at firstname.lastname@example.org and Andrew Scurria
(END) Dow Jones Newswires
August 03, 2020 21:04 ET (01:04 GMT)
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