Gustavo Bazzan
06/06/2020 - 19:48
- Clarín.com
- Economy
- Economy
The negotiation for the debt entered an instance, now yes, of definitions. In the Ministry of Economy they let it be known that this week, perhaps this Monday, the Argentine Government will announce to bondholders the new proposal, which would be presented, they say, as the last and final.
The adjustments to the previous proposal known so far -valued at $ 47 by the market- would pass by reducing the grace period somewhat, a special treatment for current interest (perhaps they would be paid with another bond) and some minor adjustment to the coupons of interest on the new bonds, considered too low by creditors. In total, modifications that would bring the value of the offer closer to $ 50.
The creditors, say in sources close to the three groups of bondholders, would not be willing to accept it: they are said to be planted at $ 55.
The Government affirms, raising the flag of "good faith", that it does not want, does not think or intend to default. The bondholders, in turn, assure that their proposals are extremely generous, in terms and interest rates, bearing in mind that they are being made to a country that is reoffending in another default event after 2002, and just four years after having regularized its situation with private external creditors. "We are offering rates of 4.25% while countries with very high credit ratings are being asked by the market for 3%", summary
Will that difference of five dollars be insurmountable? A deficiency that is attributed to the Ministry of Economy is that for now it did not accompany the offer with the economic plan that it will deploy from now on - overcoming the pandemic but also fighting with creditors - to make the payment plan that arises truly sustainable of the negotiation.
In other words, it is still unknown what the government will choose to do to recover fiscal balance as soon as possible, correct macroeconomic shortcomings and put Argentina on a path of sustainable growth for several years.
“Debt sustainability depends on generating an economic program that is consistent in fiscal and monetary terms to lower the cost of refinancing and increase potential growth. It does not help much to stand in a negotiation for the 3, 4 or 5 dollars difference in the net present value of the offer, ”says Federico Furiase , from the Eco Go consultancy.
The credibility and consistency of the “post-exchange” economic plan could be a decisive variable in the resolution of the negotiation. Let's see why. The Government and the bondholders formulate their proposals taking the same value for a key reference: the exit rate or “exit yield” is 10% . That is to say, simplifying, this rate indicates how much the new exchange bonds will yield on average once they come out onto the field, to the secondary market, and can be bought and sold. If a lower exit rate is used, the value of the proposal (of the bonds) rises. Conversely, go down.
In other words, both parties imagine that Argentina's post-swap country risk will be around 1,000 points . A low number compared to 2,539 Argentine risk points this Friday. But very high in front of the 334 points that Brazil renders; the 268 from Colombia: the 218 from Uruguay or the 133 points from Peru. These countries issued debt, these weeks, at 10 years and 30 years, in dollars, at rates of around 3% per year.
The global context is important. There is a lot of liquidity and the countries that need fresh silver to finance the greater public spending derived from the pandemic, came out to take funds to the capital market. The world of interest rates at record lows could also be quickly seized by Argentina . Again: a consistent financial plan is required. Understandable that the Government did not make it known from the start, at the start of the negotiation.
Thus, and everything, Furiase, consulted by this newspaper, made this calculation, imagining friendly scenarios for the day after the swap: “The 30-year bond offered by the Government, discounted at a rate of 10% is worth 47.3 dollars. If that rate dropped to 7% (300 basis points), the same bond would be worth $ 58. ” It is a 23% capital gain. Again: as long as Argentina looks credible.
“Furthermore, in that scenario of compression of spreads, after the swap, the bonds issued in the longer term would have a more bullish path. Thus, for example, 2038 would go from 50 to 67.5 dollars, that is to say, an increase of 35% ”, emphasizes Furiase.
Given this desirable scenario, one might wonder if Guzmán will try to make the bond's potential profit card play - which would return to the bondholders part of what they would be losing by accepting this restructuring - so that the creditors accept the Argentine offer. "It is easy to say, but so far Guzmán has done nothing to gain the trust of creditors, " realistically highlighted a financial analyst with long experience in this type of negotiations.
The key, then, is to achieve a persistent drop in country risk once the debt swap has been agreed. And for that, naturally, a credible economic plan is needed in the eyes of the financial markets.
Furiase summarizes: “To reach a scenario of falling interest rates, it is not enough to restructure and decompress the maturity profile of dollar debt. It is also necessary to show a program based on fiscal, monetary and external consistency, accompanied by an agreement with the IMF, in which the maturities with the Fund are rescheduled. If all this is achieved, the fall in interest rates that the market will ask of Argentina will occur, in a world of global hyper liquidity and negative rates. ”
In short, Guzmán should ask the bondholders for an act of faith. And hope you believe that a consistent plan will be put in place after the swap.