Via Financial Times

Argentina has missed its deadline to close a deal to restructure $65bn of foreign debt, fuelling fears that it will fall into default for the ninth time in its history.

The country had given bondholders until Friday to accept its restructuring proposal, which calls for interest payments to be delayed until 2023 and principal payments until 2026.

Most foreign bondholders rejected Argentina’s offer, according to people familiar with the matter, and participation was so low that the government preferred not to announce the results in a formal communiqué.

“This is a pretty big fail,” said one investor.

Martín Guzmán, Argentina’s economy minister, signalled on Friday that dialogue remained open with creditors.

“We value the fact that there are creditors that are entering the proposed exchange, choosing the path of a sustainable relationship,” he told El Cronista, a newspaper. “If the creditors that have still not entered have other ideas that are compatible with the payment capacity identified in the government and the IMF’s debt sustainability analysis, then we are prepared to consider them.”

Bondholders said they were now considering making a counterproposal, although many are reluctant to do so until the government concedes that its offer and the assumptions on which it is based on are not acceptable, according to one investor participating in the negotiations.

Argentina’s biggest bondholders have stood firm in their opposition to the deal since the government put it forward last month. Three creditor groups — whose members include BlackRock, Fidelity, T Rowe Price, GMO, VR Capital Group and other big institutional investors — immediately rejected the terms. Earlier this week they doubled down on their criticism, saying in a joint statement that they would not support the proposal from Buenos Aires. 

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Without the support of these creditors, Argentina will struggle to stave off another default. The group that includes BlackRock, Fidelity and T Rowe Price says its members hold more than 25 per cent of the country’s bonds issued since 2016, and more than 15 per cent of previously restructured bonds issued in 2005 and 2010 — the so-called exchange bonds. Another group representing holders of the exchange bonds claims to hold more than 16 per cent of those bonds outstanding.

Depending on the bond, Argentina needs the approval of between 66 per cent and 85 per cent of creditors. While the three groups remain separate, they have become more aligned in recent weeks, according to a person familiar with the matter. 

“[Guzmán’s] intransigence has brought all of the bondholders together,” the person said. 

Bondholders have taken issue with the fact that under the current proposal, they will not see any payments for three years. When coupon payments would begin in 2023, they say, the proposed initial size of 0.5 per cent on most bonds is simply too low.

Members of the creditor groups also hit back at Argentina for the way it has handled negotiations to date. Many investors skipped out on recent meetings with Mr Guzmán and his team, citing the fact that the deal was presented as a “take-it-or-leave-it” offer.

“The old strategy of using hard rhetoric to send prices down so they can come back to make it appear palatable won’t work,” said a member of one of the groups. “A lot of these investors bought the bonds when they were issued.”

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Under the current terms, analysts see an average recovery value of 32 cents on the dollar for the bonds issued after 2016, and roughly 35 cents on the dollar for the exchange bonds.

Investors said they are now looking ahead to May 22, the end of a 30-day grace period for payments it has already missed. Some see a path to a deal, with Argentina showing some flexibility, not least because of the risks should the country yet again default.

“It doesn’t benefit anyone to go into a protracted situation,” said one person close to the negotiations. “We know how it looks. Argentina spent a decade in financial isolation” after its default in 2001, the person added.

The ministry said a decision on how to proceed would be announced on Saturday.