Argentina extends $65 billion debt deadline after talks stall

Argentina will extend a deadline for $65 billion debt restructuring talks by more than a month, the country’s economy ministry said late on Friday, after negotiations with creditors stalled this week leaving a deal hanging in the balance.

The extension to July 24 comes with creditors and the government at an impasse, with one bondholder group slamming the negotiations this week as a “failure”. Reuters reported that the Friday deadline would be pushed back.

The delay gives breathing room for the two sides to defuse tensions and bridge the remaining divide after having made significant progress over recent months.

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 revamp its foreign debt. A deal is key to averting a long and messy legal standoff.

“We are going to pick ourselves up and we are going to find an agreement,” center-left Peronist President Alberto Fernandez, who took office last December, said in a radio broadcast on Friday, adding he was “confident” a deal could be reached.

Creditor groups are demanding Argentina improve the offer further, while the government stance is that it cannot cede ground after raising its proposal to around 50 cents on the dollar, plus an additional export-linked sweetener.

Two of the main groups said in a statement on Friday they remained ready to engage constructively with Argentina, though were disappointed with the government’s decision to “terminate dialogue” with creditors.

Despite the tensions, the two sides should eventually be able to reach a deal, analysts said.

“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. 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 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.” The country’s over-the-counter bonds rose on average 1.2% on Friday after losing ground a day earlier.

Argentina’s government now faces bond repayments looming at the end of the month that have a 30-day grace period. It defaulted on three interest payments in May.

Siobhan Morden at Amherst Pierpont said in a note the options appeared to be returning to talks or using coercive tactics to force a resolution, adding that “both sides lose from a protracted impasse or unresolved debt crisis.” “Dialogue is still open, but it is very challenging,” said a source familiar with the government’s thinking.

“Creditors do not yet realise that the government has reached the absolute limit of what they are able to offer.” 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.

Latin American stocks and currencies ticked up on Friday, with most currencies set for steep weekly losses as political ructions and fears of the coronavirus pushed money into safe havens. Brazil’s real, which was up around 1.4% for the day, underperformed its peers by a wide margin for the week, with a weekly loss of around 5%.  A string of weak economic data and political uncertainty pressured the currency through the week, with the Brazilian central bank signaling more potential rate cuts, prompting a strong sell-off on Thursday. Fears of a second wave of COVID-19 infections in major economies affected emerging market currencies through the week, with Latin American currencies bearing a bulk of the selling as cases in the region spiked.

“Whether or not the market wants to deal with it, COVID is a theme that is likely to stick with us for quite some time. Besides the obvious, it’s worse than the trade war theme of 2019, reflecting a new and more profound level of uncertainty,” wrote Mark McCormick, global head of FX strategy at TD Securities. Mexico’s peso and Colombia’s peso both rose, tracking stronger oil prices as Opec producers and allies promised to meet supply cuts, while demand appeared to be improving in major economies.

Reuters