The Government seeks to postpone the large debt maturities.
The Minister of Economy Sergio Massa received a group of bank and insurance company executives on Monday to define the new debt exchange offer in pesos with which the Ministry of Economy seeks to clear the maturity horizon of bonds in local currency , which adds more than 12.3 trillion pesos in the next four months.
For the meeting, the executives of ABA and Adeba came to the fifth floor of the Palacio de Hacienda.
The work to reach an agreement with these two sectors, some of which hold the most titles in Treasury pesos in their portfolios, had started a few weeks ago from the Finance Secretariat headed by Eduardo Setti. With part of that path already covered, the negotiations passed to the orbit of the head of the Palace of Finance. The meeting with bankers was held this afternoon in the Belgrano Room, a few meters from his office on the fifth floor.
The fear, both from the government and the opposition, is that these maturities in 2023 translate into strong pressure that will make the value of the dollar rise, in an election year
The result sought would be the second debt swap so far in 2023 to lower the amount of payment obligations scheduled for the coming months, which are concentrated in their vast majority before the primary elections. For this reason, the title conversion mechanism that Finance seeks set the horizon in the years 2024 or 2025.
The issue of deferring payments beyond the electoral process is thorny for bondholders, who have so far been reluctant to accept terms beyond September. Precisely for this reason, the negotiation with the private sector was initiated in advance. The last debt placement operation was a sample of investor behavior regarding debt in pesos: shorter terms and higher rates.
In this regard, the proposal that is defined in Economy in the round trip with banks and insurance companies, as reflected by Infobae, would include a basket made up of 80% inflation-indexed securities and 20% dual bonds, which offers holders exchange and price hedging in pesos, according to what ends up being the most convenient for the investor. The final scope of this proposal was determined in the meeting on Monday in Economy between Massa and the bankers.
“Intuitively I believe that there will not be a credit event in Argentina between now and the elections. The foreign investor is worried about the Argentine elections. He wants the elections to pass to understand what we are going to do. Outside they are demanding that the future Argentine government commit to a program that includes a significant fiscal surplus. This will only be achieved with consensus among the political forces”, considered Javier Timerman, a partner at Adcap Grupo Financiero.
“We have a very important challenge due to our lack of credibility. The measures do not generate positive expectations abroad. So, let’s order the fiscal deficit, let’s order spending, because we are in terrifying nominal numbers. Let’s lower the drama and think about sustainable measures over time. Let’s keep the idea that the debt in pesos does not have to be ‘defaulted’. Argentina is in a position to offer the world investment possibilities, but for that, you must have credibility in the interaction with financial agents”, added Javier Timerman.
This weekend, the leading economists of Together for Change, Hernán Lacunza, Luciano Laspina and Guido Sandleris, came out to criticize the reports of the initiative, which led to the exchange of bankers, aware of the details of the proposed operation. To this was added a statement from the blocks of Together for Change.
This morning, the Chief of Staff, Agustín Rossi, came out to answer them: “The same people who ‘defaulted’ the debt in pesos when they governed are trying to destabilize with a statement a month. The debt swap in pesos gives certainty and predictability to the Argentine economy, ”he said through his Twitter account.
The document issued by the JxC blocs, issued on Sunday, warned about “the serious risks involved in the debt swap being prepared by the Ministry of Economy.” request for “responsibility and seriousness” from their peers, whom they accuse of “sowing anxiety and uncertainty” in the face of each decision of the national government. Meanwhile, from the opposition, Lacunza said, through his social network twitter, that “the government prepares a debt swap with the banks”, which he defined as “a vile and ruinous operation for the State”. Sandleris, for his part, considered, also through Twitter, that he would violate the Organic Charter of the BCRA.
Meanwhile, the president of the Association of Argentine Banks (Adeba), Javier Bolzico, defended the initiative by arguing that “the proposed debt swap is for titles (not for holder).”
A report by Invecq indicated, in this sense, that February ended with a roll over (percentage of maturity coverage) of 139% against the payment obligations that remained on the schedule after the first exchange, in January. This means that it obtained almost 40 pesos for every 100 that matured during the second month of the year, which implies $405,000 million to finance the fiscal deficit and thus prevents the Central Bank from having to issue pesos to assist the Treasury.
The issue of interest rates was also particular in February. In November, debt placements in pesos had reached a maximum rate ceiling when Finance awarded a Discount Letter, which configures the main financing instrument in pesos beyond those indexed, at an effective annual rate of 118 percent. In December and January interest was cut to 114% and 112%, respectively, although in February that streak was cut and it rose again to 119% annually.
The “walls” of maturities for the coming months amount to more than 12 trillion pesos between March and July and that rises to 16 trillion until October. According to an estimate made by the consultant Equilibra, “if we look at the dynamic maturity profile (projecting the evolution of the CER and the exchange rate until the maturity of each instrument) more than 16 trillion pesos must be paid (10% of GDP ) between March and October”, they estimated.
Not all of this amount is in private hands, so it is discounted that a relevant part, which is part of the investment portfolios of the public sector itself, will enter the proposed exchange. “Banks, both public and private, would be willing to enter into this exchange, which would guarantee the conversion of more than 70% of the holdings,” Equilibra estimated.
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