By Cassandra Garrison, Tom Arnold, and Adam Jourdan
BUENOS AIRES / LONDON, Mar 31 (Reuters) – The global coronavirus pandemic threatens to disrupt Argentina’s tense talks with its creditors to restructure its debt, increasing the risk that the country will default and face a downgrade in its rating. Ratings agencies and bondholders told Reuters.
The South American country’s leaders have said they cannot continue to meet debt payments without restructuring the nearly $ 70 billion in bonds and almost $ 45 billion owed to the International Monetary Fund (IMF).
However, the timeline for presenting a proposal to creditors in mid-March and reaching an agreement by the end of the month has been largely affected by the deadly coronavirus pandemic, which killed some 36,000 people worldwide and that forced the closure of international borders.
That could have a ripple effect as payments are due. Argentina faces around $ 22 billion in foreign currency payments this year in bonds, bills and loans, including the IMF.
“I think there is a greater risk now that Argentina could make the decision to stop paying its foreign debt,” said Todd Martinez, director of Fitch Ratings for Latin American sovereign debt, focused on the Southern Cone.
“Because, for all kinds of reasons, the negotiations are going to take a little longer than they originally imagined, largely due to the coronavirus crisis,” he added.
Fitch, which has Argentina’s sovereign debt rating at “CC,” would reduce it to “RD” (restricted default) if a payment is missed, or to a “C” rating during any grace period for payment.
That could be more likely as the talks stalled due to the pandemic, which has led Argentina to close its borders and impose a mandatory quarantine until mid-April.
“It will take some difficult negotiations to reach an agreement that covers a sufficient universe of investors, and that is particularly complicated given the coronavirus outbreak,” said an Argentine bondholder who canceled a trip to the country due to the virus.
“Completion of an agreement with bondholders before the end of this month (March) is never going to happen. It will be very difficult to reach an agreement for 75% of bondholders. A six-month schedule from now it’s more realistic, “he warned.
Some of Argentina’s bonds have collective action clauses, which require amendments to a single series of bonds to be approved by holders of 75% of the capital.
The economy ministry declined to comment. An informed source on the government’s plans said that while the virus had affected the schedule, the delay should not be too significant and a six-month delay “was not remotely realistic.”
“We are in the midst of a global crisis, as we can all see,” the source said, adding that a formal proposal in April was “feasible.”
“I think that in the short term there could be both an offer and an agreement,” he said.
Argentina is expected to present guidelines for the restructuring this week, but not a formal offer, Reuters reported Monday. [nL1N2BN0WT]
NEW DEADLINE “PROVISORY”?
Bondholders and credit rating agencies said the initial term has been very short from the start.
“The end of March deadline was always unrealistic. It is too ambitious given the complexity of the restructuring,” said Nick Eisinger, director of emerging markets for fixed income at Vanguard.
Eisinger said a new “provisional” deadline could now be May 7.
Another bondholder on one of the main creditors’ committees said that some sort of deal by the end of April might be possible, although people needed a couple of weeks to adjust to the new situation with the spread of the virus.
Argentine President Alberto Fernández and Economy Minister Martín Guzmán have argued that the country cannot pay its debt obligations until it is given time to reactivate the economy, which has been in a recession since 2018.
On Monday Fernández told the local radio station Radio con Vos that “it is never good to be in default”, but that the country is going through a very delicate situation.
“We need time, today we cannot pay,” he said.
Guzmán told Reuters in early March that all parties involved in the negotiations would have to be flexible due to the pandemic, and that the deadline could be extended, although he said it would be “a matter of days.” [nL1N2B501C]
Lisa Schineller, head of sovereign ratings analysis at S&P Global Ratings, noted that the agency was working on the basis that Argentina would keep pace with payments, but that the stalled talks added a degree of risk.
S&P, which recently downgraded Mexico’s rating due to the impact of the coronavirus, has a CCC rating for Argentina with a negative outlook.
“The longer it takes, the more the risk of non-payment is presented,” Schineller said. “If there were obvious signs of possible non-payment, we could act,” he added.
(With additional reports by Eliana Raszewski and Rodrigo Campos; Translated into Spanish by Eliana Raszewski; Edited by Nicolás Misculin)