ShareThis Argentina financing - Out of Default
Tuesday, July 20, 2010
Following Argentina's restructuring of outstanding defaulted debt in June, it is set to finally emerge from "pariah" status in international capital markets. Fitch Ratings is the first major international credit-rating agency to lift Argentina's sovereign foreign-currency debt out of the "default" category. The ratings upgrade, particularly if followed by similar moves by other agencies, should help ease the way for the government to issue new external debt. However, given rising concerns about sovereign risk, the price of such issuance may still be prohibitive, and Argentina's government is likely to continue to rely on domestic sources of finance for now.
Fitch's decision of July 12th to remove the "RD" rating from Argentina's long-term foreign-currency debt and to upgrade it to "B", moving it out of the default category, reflects the completion in June of the swap of US$12.1bn in foreign debt for new securities. This represented 67% of the US$18.3bn in eligible outstanding defaulted debt. The acceptance rate was above the government's target of 60% but below the initial market projection of 70-75%.
Together with the debt restructuring conducted in 2005, this brought Argentina's restructured debt (out of the US$95bn on which it defaulted in 2001) to around 93% of the total. This level is considered sufficient to achieve a normalisation of relations with creditors. (Outstanding bilateral debt owed to the Paris Club must still be restructured, however.)
The debt exchange was viewed as successful, although a variety of factors combined to reduce the initial attractiveness of the deal. Most important was the poor timing of the swap, which was launched in early May, just before the outbreak of the fiscal crisis in Greece. Nonetheless, after a disappointing early participation period, there was solid take-up of the offer before the final June deadline.
Around US$6.2bn of eligible debt was not swapped. Of this some US$4.5bn is held by investors currently engaged in lawsuits against the Argentinian government to recover bonds at par value. The government is considering a legal strategy to isolate litigants and force them to adhere to the terms accepted by most investors.
With the second restructuring out of the way, and with economic growth expected to be robust this year (6.8% according to the Economist Intelligence Unit's latest forecast), Argentina is believed to be in relatively good shape to meet both its financing requirement and its debt obligations over the next two years.
posted @ 3:44 PM,
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