BUENOS AIRES/LONDON (Reuters) – Argentine bonds jumped on Friday after the government and key bondholders exchanged new proposals to revamp around $65 billion in debt that edged the two sides closer together and bolstered hopes that a deal can be stuck eventually.
Buenos Aires unveiled an amended proposal on Thursday with slightly earlier maturities and a shorter two-year grace period on coupon payments. Earlier, it had knocked back a new counter-offer from two key creditor groups.
The Ad Hoc Bondholder Group including AllianceBernstein, BlackRock, Ashmore and others gave more details about its joint offer on Friday, which it said involved a 32% cut in interest payments, taking the average coupon rate to 4.25%.
The South American country’s economy minister said the new proposal from bondholders was a step in the “right direction,” but fell short of what the country needed to dig itself out from its debt crisis during a lengthy recession.
“More work is still needed yet the two sides are getting ever closer,” Morgan Stanley said in a note. It calculated the net present value (NPV) of Argentina’s new offer to be around 41.5 cents on the dollar, up from 33 cents in the original offer.
“An NPV of 41.5 is a decent improvement and gets much closer to the 45-50 area where we think that a deal can be reached,” the investment bank said, adding one could be struck in the third quarter with “further goodwill on both sides”.
Citi said the shorter grace period and smaller principal haircut meant the government’s new offer was around 5-7 points better than the initial one made in April, while a new bond to compensate for accrued coupons added value.
Argentina’s over-the-counter bonds <RPLATC>, mostly trading between 30-40 cents on the dollar after a sharp fall last year, rose an average 3.3% on Friday, while a country risk index fell.
(GRAPHIC – Argentina bond prices: https://fingfx.thomsonreuters.com/gfx/mkt/jbyvrlkexve/ArgenBonds.png)
Argentina is locked in talks to revamp a foreign debt pile that has become unsustainable. The major grains producer last week failed to make around $500 million of bond payments, its ninth sovereign default.
The government has extended a deadline for talks to June 2, though people close to the negotiations say the cut-off could be pushed back further.
Siobhan Morden at Amherst Pierpont said in a note on Friday that the extended deadlines and improved offer suggested a compromise could be found.
“There is still no official breakthrough between Argentina and bondholders; however there is latent optimism of reaching a compromise under the moderate influence of President (Alberto) Fernandez,” she wrote.
(Reporting by Adam Jourdan and Marc Jones; Additional reporting by Rodrigo Campos in New York, Karin Strohecker in London, Cassandra Garrison and Walter Bianchi in Buenos Aires; Editing by Hugh Lawson, Nick Zieminski, David Gregorio and Andrea Ricci)