Argentina Delays Warrants Buyback as Focus Shifts

  • Reversal after purchase of GDP securities announced in June
  • Government will focus on financing in mid-term electoral year

Argentina’s government is postponing its plan to buy back securities that reward investors when the economy grows more than 3 percent, according to two people with knowledge of the situation.

The buyback of as much as $13.8 billion in securities had been announced in June and was supposed to have been concluded this month at the latest. It will be delayed as the government instead focuses on financing the roll-over of debt maturing this year and funding its fiscal deficit, said the people, who didn’t want to be named as the discussions aren’t public.

A Finance Ministry official declined to comment on the GDP warrants, adding that the government’s 2017 strategic plan hasn’t been finished. The dollar warrants issued in 2005 fell as much as 1.4 percent on Thursday.

The securities, which are denominated in dollars, euros and pesos, were issued in connection with debt restructurings in 2005 and 2010 as sweeteners for creditors who got burned by the country’s $95 billion default. A payout is triggered when the economy expands more than 3 percent annually.

The country would save $9.4 billion if all of the GDP warrants outstanding are repurchased, former Economy Minister Alfonso Prat-Gay said when he announced the plan to buy the securities. However, the Argentinean government has other priorities during this election year, the first person said, adding that the economy may grow at least 3.5 percent this year, which means the government will have to pay the warrant holders for 2017 unless the buyback plans are resumed.

“We believe that the market has already priced this delay (or withdrawn?), as warrants are now trading well below strike prices of the put options,” TPCG, a Buenos Aires-based brokerage firm, wrote in a report Thursday to clients.

    Before it's here, it's on the Bloomberg Terminal.