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Argentina's sweetened debt offer wins early support; bonds climb

Marc Jones, Tom Arnold and Walter Bianchi
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Argentina's sweetened debt offer wins early support; bonds climb

FILE PHOTO: Outbreak of the coronavirus disease (COVID-19), in Buenos Aires

By Marc Jones, Tom Arnold and Walter Bianchi

LONDON/BUENOS AIRES (Reuters) - Argentina's new debt restructuring offer won a tentative thumbs up from creditors as they digested the details on Monday, pumping up the country's bonds on hopes the two sides could strike a deal by an extended Aug. 4 deadline.

Two prominent funds, Gramercy and FinTech, said they would back the deal, though there was no immediate sign of whether it would gain the blessing of the biggest bloc of creditors, including BlackRock and Fidelity, which could torpedo any deal.

Argentina laid out an improved and "final" offer on Sunday that increased creditors' payments, shortened their wait time and changed key legal clauses that had become a source of tension.

The revised offer came after tensions flared with two major creditor groups and talks stalled in mid-June, as the grains powerhouse was battered by the coronavirus pandemic. It still has to be formalized with U.S. regulators.

"Considering everything that the country is going through, it looks to like a fairly good offer," said Alejandro Hardziej, at bondholder Pala Asset Management. He added that creditors might have liked a "GDP warrant" for extra payments if economic growth improves.

A deal is key for Argentina avoiding a messy and protracted legal standoff that could lock the country out of international markets and drag it further into recession.

"We look forward to supporting Argentina's offer as it provides... debt sustainability that is crucial for durable, high and inclusive economic growth," Gramercy and FinTech said in a joint statement.

Under the proposal, Argentina would start making payments in one year versus three in its original offer, made in April. Coupon payments start low but could rise to around 5%.

"The valuation gap with the latest bondholder proposals has shrunk considerably," analysts at U.S. investment bank Citi said in a note, calculating the gap at 4-5 cents on the dollar.

The bank expected a "sizable" proportion of investors holding the "exchange" bonds that were restructured last time Argentina defaulted to sign onto the deal, as the government had backed away from eroding their legal rights.

There might not be such high take up, however, from those with bonds sold under the country's previous president, Mauricio Macri, as their replacement bonds would be issued under terms offering less legal protection.

Argentine bonds, which have climbed over recent months as hopes grew for a deal, closed up almost 4% on average on Monday, though most remain at between 38-45 cents on the dollar.


DEAL RISK

Siobhan Morden at Amherst Pierpont said in a note the offer was "reasonable" and calculated its value at 53 cents on the dollar at an exit yield of 10%. She added, however, that the lack of a previous accord with key bondholder groups was a hurdle.

"There is still deal risk as this last phase was not negotiated with the Ad Hoc and Exchange Bondholder joint group," she said, adding that the pair, which together hold around $21 billion of the total eligible bonds, could block a deal.

"It's a higher-risk strategy to go ahead with a final offer without majority bondholder consent," she noted.

The two groups did not respond to requests for comment.

Goldman Sachs also calculated the net present value of the new offer at 53-54 cents, 3-4 cents above the most recently floated government proposal shared with creditors in June, though it pointed to the lack of a value recovery mechanism.

Hardziej said he hoped the two sides would be able to reach an agreement given the "small difference" between the latest proposals.

"We hope that this is the last offer and we hope it works," he said.


(Additional reporting by Karin Strohecker; Editing by Adam Jourdan, Richard Chang and Dan Grebler)