The market impact of the coronavirus pandemic has battered emerging market bond prices, making Argentina's attempt to renegotiate some $68.8 billion of foreign-currency bonds even more difficult.
Argentina Economy Minister Martín Guzmán had hoped to present the government's offer to bondholders in the second week of March and reach a deal by month's end, a timeline many already considered to be optimistic. Country officials have yet to make a formal presentation on its restructuring plans, but it has identified which foreign-currency bonds it will include in it.
But as severe market volatility has taken hold across global markets, many creditors "do not even have the capability to judge (the real value) of an offer right now," said Alejandro Cuadrado, BBVA's emerging markets and Latin America strategist.
"This is the perfect excuse to delay negotiations, which had already suffered setbacks with regard to the original and ambitious timeline," Cuadrado said. "Right now, you have stress in all dimensions, a battle for liquidity in all markets, and the attention, capacity and response speed of all parts involved has been affected."
The precipitous drop in oil prices adds even more pressure, Cuadrado noted, because while Argentina's Vaca Muerta — a rock formation that hosts substantial shale oil and shale gas deposits — was not part of the government's debt restructuring deal, "it was part of the strategy for recovery in the long-term."
Potentially making matters worse, Argentina's already depressed bond prices have dropped markedly further in recent weeks, and many now trade at or about 30-cents on the dollar. Analysts say these price levels are within what they consider holdout territory — a point at which hedge funds are more likely to scoop up the bonds and litigate to seek full repayment.
"The valuation of several of these assets is already at a parity 'vultures' (hedge funds) would look at," said Matías Rajnerman, chief economist at Ecolatina. "We don't know if they've purchased some already, as that information is private, but this would certainly limit prospects of [a favorable solution to] debt negotiations, as these funds aren't after a restructuring, but rather full repayment through litigation."
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Meanwhile, Argentina's country risk index has skyrocketed to over 3,600 basis points, which analysts say significantly reduces the likelihood that creditors will concede to a considerable haircut.
If an offer had been made to creditors last week, that proposal would now look far less appealing to creditors "because you are now discounting them at a higher rate," EcoGo Director Martín Vauthier noted, explaining that "the hike in Argentina's risk premium more than offset the drop in the global risk-free rate."
At this point, Argentina's ability to reinvigorate exports and consolidate its fiscal and monetary policy appears increasingly uncertain, distancing any sustainable proposition by the Argentine government from terms that bondholders would likely accept.
As Matías Rajnerman, chief economist at Ecolatina, explained, "lower exports would accelerate the government's difficulties, while greater risk aversion at the global level will diminish the appetite for Argentine assets," he said.
If Argentina's government still hopes to make headway on its restructuring plans soon, it likely will have to compete more aggressively for creditors' attention, Esteban Domecq, president of Invecq Consultores, told S&P Market Intelligence. Due to the global market volatility, Argentina's restructuring process will no longer be among the top priorities for the large investment funds involved in the negotiations, he argued, which likely means progress will be slower.
Additionally, the economist said that a global slowdown in economic activity, foreign trade and commodity prices "implies a much weaker macroeconomic scenario for Argentina, which has seen stagnation and inflation for eight years, along with structural, fiscal, monetary and trade imbalances."
"This reduces Argentina's possibilities of payment and will greatly hamper the negotiation," Domecq said.
