Investors have abandoned hopes of a last-minute reprieve in negotiations with Argentina to restructure $65bn of foreign debt, as the country braces itself for a ninth sovereign debt default.
Both sides say talks will continue after Friday, when the 30-day grace period for previously missed payments lapses. But simmering tensions over the failure to reach a deal remain, and there is still the danger of a chaotic fallout from a technical default.
Bondholders accuse Martín Guzmán, Argentina’s economy minister, of being too dogmatic, while the government complains some creditors have acted high-handedly. But some are optimistic of a settlement.
“The contours of a deal are clearly visible,” said a person familiar with the government’s thinking, who believed a deal must be reached within “days to weeks”.
“It’s like when you’re far from a mountain summit,” the person said. “It’s not like they are about to sign something, but you can see where the scope for a deal is.”
An extension of Argentina’s offer is now widely expected after Mr Guzmán this week described the Friday deadline as “anecdotal”, admitting there was a “big chance” it would be extended.
But bondholders say negotiations so far have been frustrating. “We still have no real idea what the government is thinking, and here we are [a day away] from a default,” said a person who is involved with a BlackRock-led group of creditors. The group counts Fidelity, Ashmore and T Rowe Price among its members.
“Frankly, the Argentine government has engaged virtually not at all with anyone for months in this whole process,” added the person. Nonetheless, the person believes the proposals from creditors and the government are “not a million miles away from each other. There is a landing zone in there.”
Bondholders submitted three separate counter-proposals last week in response to the government’s original offer that included a 62 per cent “haircut” on interest payments. The counter-proposals are “a step in the right direction”, according to the person familiar with the government’s thinking, but remain too far from what the state is able to pay.
One particular flashpoint is the government’s insistence that all bond payments should be suspended for three years — close to the end of President Alberto Fernández’s four-year term. Each of the bondholders’ counter offers proposed a grace period of just one year.
“What creditors have put forward here is pretty much the bottom line,” said a member of another bondholder group. “The ball is in their court. We have delivered a proposal.”
According to Siobhan Morden, head of Latin America fixed income at Amherst Pierpont, a securities firm, the government’s proposal suggests a recovery value of 39 cents on the dollar for the bonds issued after 2016, assuming that the new bonds trade at a yield of 10 per cent after the restructuring. The equivalent value is roughly 42 cents on the dollar for the so-called exchange bonds, which were previously restructured in 2005 and 2010.
Those figures are some way adrift of the bondholders’ proposals, according to Ms Morden’s calculations. The exchange bondholder group is seeking an average recovery value of 58 cents on the dollar, on a similar basis.
A proposal put forward by Gramercy Funds Management, Fintech Advisory and a creditor committee involving Greylock Capital Management and GMO asks for the same for the post-2016 bonds. Meanwhile, the proposal from the BlackRock-led group, whose members hold both the exchange bonds and those issued since 2016, suggests an average recovery value of 60 cents on the dollar.
A government official involved in the negotiations indicated that Argentina might be willing to make a counter offer if bondholders were to adjust their current proposals to reflect a recovery value in the low 50s.
According to a person familiar with the matter, BlackRock has discussed with other members of its group the prospect of accepting a recovery value of between 50 to 55 cents on the dollar.
Market prices of various bonds have rallied in recent days amid optimism that talks had not collapsed entirely, even as default looms. In a public statement released on Monday, the group involving BlackRock said it was “hopeful that a mutually acceptable solution can be reached”.
Mr Guzmán has said that the government is flexible, even though it is committed to staying within the constraints of its own forecasts. A study carried out earlier this year by the IMF concluded that Argentina’s debt was unsustainable.