By Adam Jourdan, Marc Jones and Rodrigo Campos
BUENOS AIRES/LONDON/NEW YORK (Reuters) – Argentina’s debt deal is hanging in the balance with creditors and the government at an impasse, though most analysts still expected the two sides to find a way to bridge the divide after having made significant progress over the last month.
The South American grains producer, long a boom-and-bust economy that in May defaulted for a ninth time, has twice improved a proposal to restructure around $65 billion in foreign debt, though talks with creditors hit a roadblock this week.
Creditor groups are demanding the country improve its offer further, while the government stance is that it cannot cede ground after raising its offer to around 50 cents on the dollar plus an additional export-linked sweetener.
With a fluid deadline on Friday for a deal, expected to be extended, analysts said that despite the tensions the two sides should still be able to reach a deal.
“While it would have been better that negotiations continued with more constructive statements, this is not the first time the restructuring would seem to be at an impasse,” Morgan Stanley said in a note on Friday.
It said that at a 10% exit yield, the government’s offer was worth around 49.7 cents while the most aggressive counter from two groups, including names like BlackRock, Fidelity and AllianceBernstein, was worth around 57 cents.
“At less than 8 points difference, it would not benefit either side to completely break away from negotiations,” the investment bank said, adding it stuck by its view that a deal would be reached in the third-quarter of the year.
Goldman Sachs said that while risks had risen, the two sides may ultimately find a way to bridge a gap it calculated at 5 cents and “avoid a disorderly and contentious default.”
Argentine over-the-counter bonds rose on average around 0.7% on Friday after losing ground a day earlier.
BURNED BRIDGES?
Argentina’s government now faces further bond repayments at the end of the month, which have a 30-day grace period, after it defaulted on three interest payments in May.
Some were more negative on the prospects.
Kim Catechis, investment strategy head at Martin Currie, said amid “steadily rising acrimony” Argentina risked burning bridges with investors, and cautioned about the rising prominence of populist vice president Cristina Fernandez de Kirchner.
A bondholder with knowledge of the negotiations said the two sides seemed to be skirting around a deal.
“It’s like we’re sort of dancing around it. It’s a game, they are treating this like a continuation of a poker game that they want to keep playing,” he said.
Roger Horn, senior emerging market strategist at SMBC Nikko Securities America in New York, said, given the tough current context, the progress already made was notable.
“When you think about it, getting a recovery of almost 50 cents on the dollar from a serial defaulter with the Peronists in power, Cristina in the background, with a collapsed economy during a pandemic, doesn’t sound so bad,” he said.
(Reporting by Adam Jourdan, Marc Jones, Rodrigo Campos and Karin Strohecker; Editing by Nick Zieminski)
