Argentina Extends Swap Offer, May Shelve Plan to Sell International Bonds
Argentina gave institutional investors more time to turn over defaulted bonds in a $20 billion restructuring offer and said the government may scrap plans to sell new debt after borrowing costs surged.
Argentina extended the deadline for swapping securities to May 14 from today and said further extensions are possible, according to a government statement distributed by Barclays Capital, which is managing the offer. Economy Minister Amado Boudou said yesterday the country may scrap a $1 billion bond sale that formed part of the restructuring after yields rose to a two-month high on concern the Greek crisis was spreading.
Delays in advancing the exchange over the past two years are costing President Cristina Fernandez de Kirchner, who could have sold new bonds at a yield of 7 percent in 2008, said Alberto Bernal, head of fixed-income research at Bulltick Capital Markets in Miami. Argentina’s dollar bonds yielded an average 11.17 percent at yesterday’s close, according to JPMorgan Chase & Co.’s EMBI+ index.
“Everything always comes late,” Bernal said in a telephone interview. “That’s always a problem with Argentina. This deal would have been perfect to open two years ago.”
45.5 Cents on Dollar
The bond sale would be the South American country’s first in international markets since it defaulted on $95 billion of debt in 2001. The government says the restructuring of defaulted bonds that creditors held out of a 2005 settlement will give it renewed access to overseas markets.
The value of the securities awarded to creditors in the 2005 deal climbed to about 60 cents as of mid-April, according to calculations by Credit Suisse Group AG. Argentina’s new restructuring offer -- as measured in net-present value terms -- is worth about 45.5 cents for institutional investors, according to RBS Securities Inc. debt strategist Siobhan Morden.
The Economy Ministry said in a statement that it decided to extend the swap “in line with a request from participants, given the large number of offers presented at the end of the initial offering period.”
Stone Harbor Investment Partners turned over “significantly less” of its defaulted bonds than it initially planned because the government’s offer was worse than the firm expected, fund manager Jim Craige said yesterday.
Stone Harbor exchanged less than 20 percent of its holdings after selling “a lot” of them in the secondary market in the run-up to the swap, Craige, who helps manage $12 billion in emerging-market debt, said in a telephone interview from New York. He declined to say how much of the debt Stone Harbor held before the exchange.
“It is a bad strategy,” Boudou told reporters yesterday in New York, where he was meeting with investors. “We are convinced this will be the last opportunity because there will be a level of acceptance that will allow the end of this episode.”
Yields on Argentine dollar bonds have soared 51 basis points, or 0.51 percentage point, this month to 11.17 percent and touched a two-month high of 11.54 percent last week, JPMorgan indexes show.
“If the conditions are not acceptable to our country, we won’t do” the new bond sale, Boudou said. “We can postpone it because it is a very complex week.”
The government aimed to price the 8.75 percent dollar bonds due in 2017 on May 14. That has been pushed back until May 18, “unless extended” further, today’s government statement said. The 2017 bond was to be issued to both help settle with defaulted debt holders and to raise cash from new investors. The exchange, which opened May 3, is still scheduled to be completed on June 7, according to the statement.
“It’s a pretty tight schedule they had,” Edwin Gutierrez, who manages $5 billion in emerging-market debt at Aberdeen Management Plc in London, said in a telephone interview. “It could be a logistical issue.”
The yield gap on Argentine dollar bonds over U.S. Treasuries narrowed 41 basis points today to 685 basis points as of 3:33 p.m. in New York, according to JPMorgan. The spread reached 786 basis points last week, the widest since Feb. 26. It was 601 basis points on April 15. Argentina’s peso slid 0.1 percent today to 3.8955 per U.S. dollar from 3.8922 yesterday.
South America’s second-biggest economy faces a financing gap of about $4 billion this year and is drawing on central bank reserves to meet those needs, Eurasia Group analyst Daniel Kerner wrote in a report from New York last week. Boudou, who was scheduled to meet with investors in Boston today, said the government has no pressing need for cash from a bond sale.
“For us, this is basically a symbolic act,” said Boudou, 47. “The goal is to have a benchmark for a security issued in the market after many years. It doesn’t have a fiscal goal.”
Argentina’s restructuring offer includes bonds due in 2033 worth 33.7 cents on the dollar, warrants linked to gross domestic product -- the same securities offered in 2005 -- as well as the 2017 bonds to pay past-due interest. The offer doesn’t include past-due payments on the GDP warrants.
Italian consumer group ADOC said May 3 that a meeting with Boudou in Rome offered “new hopes” for Italian small investors and that the Argentine government is “open” to the possibility of fully reimbursing small investors. Italy is home to holders of nearly a third of the outstanding bonds.
Boudou said the country is in better shape since the default even though investors are shunning the country.
“When we were the best grade, it was bad for us,” he said. “Now that we are ugly, dirty and bad, we’re not doing as bad. The Argentine policy is not made to please Wall Street and the world. It is made so that Argentines can live a little better.”
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