LONDON (Reuters) - A group of major asset managers who are creditors to Argentina have rejected the government’s proposal aimed at overhauling $66.2 billion of its foreign-law debt, saying it inflicted an unjust amount of financial pain on international bond holders.
Argentina sketched out its proposal late last week involving a three-year grace period, large coupon cuts and a smaller reduction in capital that would provide the South American nation with around $41.5 billion of relief.
The grains producer, which has been grappling with recession, rocketing inflation and a mounting debt crisis, is battling to avoid a messy default and has said it wants to find an amicable path with creditors, though that has proved far from simple.
A creditor group, made up of some of the world’s largest asset managers, said in a statement it understood the various economic and political shocks facing the country.
“Regrettably, despite the efforts of the group and other stakeholders, the proposals contained in the recently published press release are not ones which the group can or will support,” the statement said.
“The group believes that all stakeholders in Argentina will need to contribute to a solution that puts Argentina on a path toward sustainable growth and financial stability.”
The country’s proposals “seek to place a disproportionate share of Argentina’s longer-term adjustment efforts on the shoulders of international bondholders”, the statement said.
Members of the group include AllianceBernstein, Amundi Asset Management, Ashmore, BlackRock Financial Management, BlueBay Asset Management, Fidelity Management & Research Co and T. Rowe Price Associates. Its legal advisor is White & Case.
Together, its members hold more than 25% of Argentina’s post-2016 bonds and more than 15% of so-called exchange bonds, issued in the last debt restructuring, it added.
Earlier on Monday, another creditor group - the Argentina Creditor Committee (ACC), which includes emerging market specialist Greylock Capital as well as mutual funds, family offices, insurance firms and asset managers - also said it could not support the proposal.
Argentina’s over-the-counter bonds shrugged off the tough start to talks, rising to close an average 2% higher on Monday after a steep jump on Friday, with traders hoping a deal could still be struck despite the rejection.
Argentina’s economy ministry did not respond to a request for comment on Monday.
Argentina, which had a total $323 billion debt pile at the end of 2019, has already moved to push back its peso debt, freeze payments on local-law dollar borrowings until the end of the year and sought relief from major creditors such as the International Monetary Fund (IMF) and the Paris Club.
However, it still faces an uphill struggle to convince its international creditors or face default.
Argentina needs to pay around $500 million in interest payments on bonds included in the restructuring on April 22. If it misses the payment, it will have a 30-day grace period before triggering a default around May 22.
(GRAPHIC: Default traps - here)
The creditor group of major asset managers said it did support a push aimed at deferring near-term maturities to provide more than $40 billion of cash flow relief in coming years.
It said it also had put forward its own proposed restructuring plan that gave the government financial space to meet economic and social demands in the country in the near term through an extended period of cash flow relief, though no further details were given.
The government proposal would see a three-year halt on payments, a 62% coupon cut, equivalent to a $37.9 billion reduction, and a 5.4% reduction to principal, amounting to around $3.6 billion. Bondholders will have around 20 days to make a decision on the offer before the deal closes.
Citigroup analysts said the proposal was unattractive, with the value of the package offered in the low 30-cents-on-the-dollar range for both the U.S. dollar and euro bonds.
Morgan Stanley analyst Fernando D Sedano said that the deadline was looking tight, though the proposal did have consensus among the country’s political leaders, predicting a potential agreement was only possible in the third quarter.
“Political support for the proposal means that negotiations cannot drag on forever, as the authorities have other pressing needs to address as the lockdown takes its toll on the economy,” Sedano wrote in a note to clients.
However, calculations of the net present value under the proposal - referring to the worth of future bond payments in current terms - meant “both parties will have to concede significant room for that to happen”, Sedano added.
The group of large asset managers said its members were ready to continue negotiations, adding they were confident that a solution could be found involving the IMF as well as other private and official sector creditors.
Additional reporting by Marc Jones, Cassandra Garrison and Adam Jourdan; Editing by Toby Chopra, Alex Richardson and Jonathan Oatis