by Clara Agustoni and Mariana Santibanez
Argentina’s presidential change may not be enough to avoid a new sovereign debt restructuring as soon as next year, according to two bondholders and two debt restructuring advisors.
The country’s gross financial needs will increase in 2024 amid larger payments due to the International Monetary Fund (IMF), the step-up in sovereign coupons and the initiation of the principal payments for the government's 2030 bonds; said an Argentina based investor. On top of that, the cash-strapped nation faces obligations of close to USD 18bn, representing more than 2% of GDP, related to recent court judgments in the US and UK, he said.
“Every five years Argentina tends to restructure, and we are now approaching that time,” said a debt restructuring advisor. The IMF’s debt sustainability analysis (DSA) contains a “warning” for bondholders, as “it outlines that if there were to be adverse shocks, there is enough foreign debt to be restructured,” said the source. "You have to read the DSA carefully and not enough people are doing that," said the advisor.
“It is very likely that Argentina will go through some sort of restructuring, soon," said a Europe-based bondholder. Debt service increases in 2024 and 2025 and reserves are at low points with the drought, the country is experiencing, the bondholder said.
Argentina’s net international reserve position at the Central Bank (BCRA) stood at negative USD 4.68bn on 13 August, according to estimates of Argentine portfolio manager PPI.
“The matter is whether a restructuring is more or less friendly, and that depends on who wins the elections and how things unfold in the next few months,” the Europe-based bondholder said.
Argentina is electing a new president on 22 October, as reported. Javier Milei, a libertarian candidate, is leading the polls, with ruling party representative Sergio Massa following closely and center-right candidate Patricia Bullrich in third place. The new administration is expected to take office on 10 December.
“We could go from a nice exchange offer to a more difficult and more harder restructuring, but that will depend on the policy and the president,” said a second debt restructuring advisor. “There are three candidates that are more pro-market than others in the past. I don’t see any of them with the will to go against the market, but definitely there are challenges”, the source said.
Milei’s economic advisors Dario Epstein and Juan Napoli met a group of investors in the US on 7 September and told them that the candidate had no plans to restructure the bond debt that the government restructured in 2020, said the Argentina-based investor. Their plan is to roll over next years’ commitments with limited new debt issuance. In exchange, they plan to take fiscal deficit and monetary issuance to zero, said the investor.
“The market is comforted by Milei’s comments that he won’t restructure,” said the first advisor. However, “it is very hard to come to power and have to squeeze your citizens. For previous governments, it has always been more palatable to restructure,” he said.
Court judgements, ‘the other debt’
On top of its obligations with bondholders and with multilateral lenders such as the IMF, Argentina faces its “other debt” which are the damages payments ordered by court judgments both in the US and UK, said the Argentina-based investor.
Last week, a US District court concluded that Argentina should likely make a payment of USD 16bn to former shareholders of oil and gas producer YPF due to its decision to expropriate the company in 2012.
Additionally, a UK court ruled in April that the country should pay EUR 1.3bn (USD 1.4bn) plus interest to holders of its GDP warrants who claimed Argentina manipulated economic statistics in order to avoid making payments on those securities in 2014. A similar case has been filed in the US.
“The difficulty for sovereign bondholders is to evaluate when these disbursements will come due for a country with deeply negative net reserves,” said a PPI report. “With no market access, the competition for Argentina’s financial resources from legal claims could magnify the risks of another restructuring round,” PPI wrote.
