Argentine bonds extended a recent dip on Tuesday after the government formalized its $65 billion debt restructuring offer, underscoring investor concern about the South American country’s shaky economy despite creditors’ rallying behind a deal.
Argentina’s over-the-counter bonds closed down an average of 0.3% and traded at around 45-50 cents on the dollar, well below the 54.8 cents net present value (NPV) of the government’s proposal. The country’s risk index also edged up.
Following months of tough negotiation, Argentina made a breakthrough with creditors in early August on a deal and filed a new offer to the U.S. Securities and Exchange Commission on Monday. Creditors now have until Aug. 28 to approve the deal.
The three main creditors groups who took part in the talks, including names like BlackRock, Ashmore and AllianceBernstein, have already backed the latest proposal, giving it a high chance of success.
On Tuesday one of the groups reiterated its support and said it hoped the revised terms and extended offer period “will contribute to a successful high-participation debt exchange”.
Despite the backing, however, analysts said there were concerns about falling reserves, persistent capital controls and economic recovery after the pandemic, and what that meant longer term about debt sustainability.
“The debt restructuring in itself doesn’t provide enough of a positive shock or solution to the current economic crisis,” Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities, said in a note to clients.
Morden said the current pricing indicated an exit yield of nearly 12% and added that for further rises, creditors would want to see a pragmatic plan to deal with the crisis and positive news on talks with the International Monetary Fund.
“The damage to investor relations and the already weak economy from a protracted debt restructuring process now questions whether the revised repayment terms are sufficient to service still onerous payments in 2025-2035,” Morden added.
Others noted that current prices, however, were not far from market expectations throughout the negotiation.
“Investors always expected the bonds would start to trade at 12% exit yield,” said Mauro Roca, emerging markets sovereign research managing director at TCW in Los Angeles. In the talks both sides had converged on a 10% exit yield.
“That is consistent with the average price that we have now that is around 47 (cents),” Roca added.