Argentinas sovereign debt overhaul intentions – Read the papers…… Argentinas sovereign debt overhaul intentions
July – August 2019 – Argentina’s assets tumbled in the wake of President Mauricio Macri suffering an unexpected bruising primary election loss this month at the hands of populist-leaning Peronist Alberto Fernandez, with the central bank forced to burn through its reserves to prop up an ailing peso.
Unable to roll over much of its short-term local debt, Treasury Minister Hernan Lacunza on Wednesday announced plans to extend maturities of local law bonds held by institutional investors and stated intentions to do so on international debt and dues owed to the International Monetary Fund.
Some $7 billion of short-term debt, $50 billion long-term debt and $44 billion of IMF debt are earmarked for an overhaul, according to calculations by developing markets investment house Tellimer. Argentinas sovereign debt overhaul intentions
Yet investors disagree on whether a full blown default is now inevitable, whether the planned overhaul will cure Argentina’s ills and what hit holders of international law bonds may face. Argentinas sovereign debt overhaul intentions
Deutsche Bank’s Hontao Jiang said the proposed measures could work, if the country faced only a liquidity crisis, but this was unlikely given questions over its solvency.
“Make no mistake about this, this will be a debt default on Argentina’s external debt,” predicted Jiang in a note to clients. “Whether this announcement itself constitutes a default that triggers CDS (credit default swaps) or not, we are not sure, but if such debt operations do take place, it would be a default and it would trigger CDS.”
CDS, a way to insure default risk, have rocketed by more than 2,000 basis points since the Aug. 11 primary vote, and imply a roughly 50% probability of default over the next 12 months. That probability rises to over 80% over the coming five years. Argentinas sovereign debt overhaul intentions
“Even if all debt maturities are extended, without nominal haircuts to reduce the debt stock – especially the external debt stock – it won’t solve the solvency issue,” Jiang added. Argentinas sovereign debt overhaul intentions
Deutsche Bank calculates that markets are currently pricing a 30% nominal haircut if an exit yield is 12% and 10% respectively under a scenario where all international dollar- and euro-denominated bonds are exchanged into 15-year bullet bonds with a coupon of 6.5% and 5% – reflecting the average coupon of the existing bonds in those currencies. The exit yield is the market’s forecast of the value of sovereign bonds after a restructuring.
BNP Paribas calculated earlier in August that holders of Argentina’s debt could face a 40% haircut, though the range of possible write downs stretched from 38.6% to 62.7%, depending on scenarios. Argentinas sovereign debt overhaul intentions
Argentina has long been on the high-risk list: Black Rock in June ranked it 57 out of 60 countries on its sovereign risk index measuring factors such as willingness to pay, fiscal breathing space, the health of a country’s financial sector and its external finance position.
That ranking put Argentina just above Venezuela, Lebanon and Egypt. Argentinas sovereign debt overhaul intentions
Seems like there is objective evidence of impairment as at the reporting date – recognise lifetime expected losses, with interest revenue being based on the net amount of the asset (that is, based on the impaired amount of the asset) (reference is made to the three stage approach). At first glance the lifetime expected losses could amount to 30% – 65%, depending on findings and conclusions from an in-depth (internal) research paper.
After a poor primary-election outcome, Argentinian president Mauricio Macri finds himself running for another term under economic and financial conditions that he promised would never return. The country has imposed capital controls and announced a re-profiling of its debt payments. Its sovereign debt has been downgraded deeper into junk territory by Moody’s, and to selective default by Standard & Poor’s. A deep recession is under way, inflation is very high, and an increase in poverty is sure to follow.
It has not even been four years since Macri took office and began pursuing a reform agenda that was widely praised by the international community. But since then, the country has run into trouble and become the recipient of record-breaking support from the International Monetary Fund.
See also: The IFRS Foundation