Analysts warn that Argentina's largest peso-denominated debt swap since 2005 may not attract sufficient investor support.
The country's latest swap plan, for around 463 billion pesos (US$7 billion) of local debt at face value, may fail, as it means investors must take a loss of up to 30 percent, according to estimates by BTG Pactual.
The Economy Ministry said on Monday night that it would give creditors the option of swapping peso bonds that match the monetary policy rate, known locally as "Bopom," and a series of treasury bills for one of four inflation-linked bonds.
The swap marks the latest attempt to address an estimated 1.8 trillion pesos (US$29 billion) of local debt that the government has tried to swap or reinvest with mixed results, leading to the government unilaterally delaying some local maturities.
The agreement in pesos also comes as Economy Minister Martín Guzmán prepares an initial offer to investors to redesign some US$70 billion in foreign debt, and as global assets suffer a runaway caused by the coronavirus pandemic.
“The problem with the latest proposal is that the government is offering the new notes at a fixed price above market value,” says Alejo Costa, Argentina's chief strategist at BTG Pactual in Buenos Aires.
He estimates that, under the terms of the offer, investors who exchange the Bopom will accept a cut of almost 30 percent.
"The strategy is to offer too low a return in real, unrealistic terms," says Costa. "The market is concluding that, sooner or later, the maturities will change, and that means the local market is still broken.”
Argentina has 142 billion pesos (US$2.2 billion) in Bopom bonds outstanding, which pay interest on March 25 and mature in June. However, the payment may be even higher, because the bond has a variable rate.
Pacific Investment Management Co. owns at least 53 percent of the securities, the largest share, according to Bloomberg data as of December 31.
The Treasury is also seeking to exchange about US$364 billion pesos (US$5.8 billion) in principal and interest on promissory notes known as Lecaps and other bills, according to BTG estimates.
Because of the implied loss, only investors who believe they will not be paid at the bond's maturity have an incentive to participate, says Costa.
"You only bid if the threat of not being paid is strong enough," he says. Even with the loss, "if I were in your shoes, I would participate or leave the position entirely.”