November 24, 2020

Argentina’s provinces also face tensions over their public debt



While Argentina is looking against the clock for an agreement to restructure bonds for $ 66,239 million, several of its provinces also face tensions over their public debt, including that of Buenos Aires, the most populous and wealthy district in the country, which has already defaulted on a payment in the middle of tough negotiations with your creditors.

The province of Buenos Aires, which launched in late April an offer to exchange foreign law bonds for $ 7.148 million, had until Thursday to regularize a maturity of about $ 110 million.

It did not do so and technically incurred a selective cessation of payments, although the Buenosairean authorities allege that this does not prevent continuing with the negotiations since the titles whose payment has been defaulted form part of the restructuring proposal, whose accession term has been extended. Until May 26th.

The Buenosairean offer supposes a capital withdrawal of 7% and a grace period of three years, that is, to start paying in 2023.

HARD NEGOTIATIONS

As with the initial proposal launched by Argentina, the Buenos Aires offer was also rejected by large investment funds creditor of the province.

A committee of creditors that claims to own 42% of the debt at stake urged the Buenos Aires Executive – headed by Axel Kicillof, Minister of Economy of the Government of Cristina Fernández (2007-2015) -, to enter into “substantive negotiations” to reach an agreement.

The Buenosairean government alleges to be in a critical financial situation, after two years of an economic recession that is deepened by the SARS-CoV-2 coronavirus pandemic.

“Creditors are well aware of this situation and it is in their good faith to incorporate it into any counterproposal. The province’s ability to pay is very limited,” the district said in a statement Thursday.

According to Úrsula Cassinerio, analyst at Moody’s rating agency, “if the offer is accepted, the restructuring would provide financial relief to the province by significantly reducing its debt services until 2023, but the challenges associated with tight liquidity and reduced collection will continue to be present in 2020 “.

BREACH

This Friday the S&P Global Ratings agency lowered the rating of Buenos Aires long-term debt to ‘SD’ (selective default) after default on Thursday.

The entire process of the Buenos Aires negotiation, and the partial cessation of payments in particular, is closely watched by the markets, which, in turn, follow in parallel the evolution of the talks between the government of President Alberto Fernández and private creditors to the restructuring of Argentine debt.

As the negotiations unfold, Argentina could also enter a “selective default” if next Friday it does not regularize an interest payment of $ 500 million on three bonds included in its restructuring offer.

That same Friday, the extended membership deadline expires for the exchange offers launched a month ago by Argentina, which is seeking an agreement with creditors against the clock.

“It is clear that on the debt issue, Kicillof and the national economy minister, Martín Guzmán, work together in a coordinated manner,” Portfolio Personal Inversiones said in a report.

According to the firm, the province’s decision to go into selective default “could be seen as a threat to holders of the national debt, putting more pressure on bondholders to finally accept the offer.”

OTHER PROVINCES ALSO IN PROBLEMS

Other districts in Argentina are also struggling to cope with their debt and plan to face restructuring.

The province of Mendoza (west), which announced last month that it will prepare a swap offer, must pay a maturity of 25 million dollars next Tuesday and, according to a recent report from S&P, the province, “with very limited options for continue to pay your obligations, “you will face” inevitably in the next six months “a default or a restructuring.

Meanwhile, Córdoba (center) is preparing a proposal to restructure three foreign law bonds for $ 1,685 million.

Chubut, Tierra del Fuego, Salta, Río Negro, Neuquén, Santa Fe, Chaco and the city of Buenos Aires are also districts that in recent weeks have seen how various risk rating agencies lowered their ratings as debt issuers due to the worsening of their financial and economic situation, in tune with that of the country.

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