Argentina Extends $65 Billion Offer After Bondholders Balk

(Bloomberg) -- Argentina extended the deadline for bondholders to consider a $65 billion restructuring offer, buying time for more talks after the government failed to win enough support to reach a deal.

The government is open to accepting offers that both allow the country to reach its debt sustainability goals and enhance creditor recoveries, according to a statement. Hours earlier, Argentina extended the deadline on its debt offer to May 22 from May 8 in a resolution published in the Official Gazette on Monday. Neither statement disclosed what percentage of investors accepted the original proposal.

Argentina’s dollar bonds climbed the most in three weeks after the government announced the extension, although the securities still trade near record lows as creditors brace for steep losses.

“While many of our bondholders supported Argentina’s invitation, other significant groups of creditors did not,” the Economy Ministry said in the statement.

The new deadline aligns with the due date for $500 million of delayed interest payments. Failure to reach an agreement or pay the cash by that date would result in a default, Argentina’s ninth in 200 years. To close the deal, the South American nation needs the support from creditors owning at least two-thirds of some of the outstanding bonds. Bonds edged higher on optimism the country can still avoid a hard default.

The government’s debt team plans to speak with individual bondholders and creditor groups over the course of the week through video conferences, according to a person with direct knowledge of the matter who asked not to be named because the discussions are private. The deadline extension was first reported by Bloomberg.

In its statement, the country said it would consider in good faith any proposal that meets its debt guidelines, including combinations of interest rates, capital reduction, grace periods and extension of maturities different from those that have been proposed.

The extension “will give the government time to revise its proposal on the basis of the feedback it has received,” said Richard Segal, a senior analyst at Manulife Investment Management in London, which has $409 billion of assets, including Argentine debt. “Investors recognize that Argentina can’t afford to pay much near- to medium-term.”

Argentina Extends $65 Billion Offer After Bondholders Balk

The bonds trade at deeply distressed levels near 30 cents on the dollar. Argentina’s $4.5 billion in dollar notes due next year rose 2.2 cents to 33 cents on the dollar at market close in New York Monday.

Before the original deadline on Friday, the country’s three largest creditor groups had already rejected the terms of the offer, which asked bondholders to take significant losses on interest and set a three-year grace period before any payments are made.

Argentina had won the backing of the International Monetary Fund and academics including Joseph Stiglitz and Jeffrey Sachs, and insisted that even before the coronavirus pandemic began wrecking its economy, it was unable to pay what is owed.

The South American country, which resolved its previous default just four years ago, lured billions of dollars of investment in 2016 after the inauguration of President Mauricio Macri, who had vowed to bring back economic growth. Instead, the country saw a sharp plunge in the value of its currency, accelerating inflation and a severe economic contraction. He was voted out of office last year, replaced by the left-wing Fernandez.

The agriculture-driven economy is poised to contract for a third-consecutive year in 2020. Officials are battling a widening gap between Argentina’s official and unofficial exchange rates due to capital controls and annual inflation that’s still hovering above 48%.

“The government insists publicly that it wants to avoid a default but the current crisis offers the perfect excuse for President Alberto Fernandez to play hardball with Argentina’s creditors,” analysts at consulting firm Teneo wrote in a note.

The Province of Buenos Aires, which has followed the national government in submitting a proposal to rework $7 billion of its foreign debt, has given creditors until Monday to accept its initial offer. The province’s creditor group has panned the proposal, saying the deal represents a 60% loss to bondholders.

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