By Cassandra Garrison
BUENOS AIRES (Reuters) – Argentina’s Buenos Aires province and its creditors are at a cliff edge in bond restructuring negotiations that could set the tone for the country’s larger $100 billion debt talks.
Holders of a 2021 bond have until 1 pm (1600 GMT) on Friday to agree to a proposal delaying a $250 million principal repayment until May 1. If they do not agree it would leave the province days away from falling into technical default.
The negotiation is a litmus test for talks to restructure the South American nation’s sovereign debt, including with the International Montetary Fund, which center-left President Alberto Fernandez wants to wrap up by the end of March.
“Argentina’s President and the governor of Buenos Aires are both playing their cards just a few meters from the precipice,” consultancy Massot Monteverde & Asociados said in a report, adding that with “one false move” talks could quickly fall apart.
The province has a 10-day grace period on the capital repayment originally due on Jan. 26, which would indicate that it would enter technical default around Feb. 5, the same day Economy Minister Martin Guzman is set to meet the IMF in Rome.
Buenos Aires needs support from holders of 75% of the debt to move ahead with its proposal. It has already had to push back its deadline for responses and offer a sweetener after struggling to convince enough bondholders.
Holders of the Buenos Aires 2021 bond include major creditors such as Fidelity and Schroders, Refinitiv data show.
“The consequences of failing to make a payment this month could be severe,” said financial services firm ING Group, adding the Buenos Aires case was a “taste of what’s to come”.
“Even though the default would effectively be limited to the Buenos Aires province, the noise generated could be detrimental to the federal government’s debt-negotiation process.”
(GRAPHIC: Buenos Aires’ debt tango – https://fingfx.thomsonreuters.com/gfx/editorcharts/ARGENTINA-DEBT/0H001R88EBP3/eikon.png)
The provincial government has said it has “significant support” for its proposal, though analysts would not rule out another deadline extension, pushing negotiations down to the wire. The provincial government declined to comment.
Nikhil Sanghani, a London-based economist at Capital Economics, said the uncertainty over the debt had hit investor confidence, already low after a sharp market crash last year pummeled Argentine bonds into distressed territory.
“An increasingly likely hard default on the BA bond would complicate an overall sovereign debt restructuring, and would hinder any slim chances of wrapping up a quick deal with creditors before the government’s March 31 deadline,” he said.
Argentina’s economy ministry released a timeline on Wednesday saying it would present its formal offer to sovereign bondholders by the second week of March with a deadline to strike an agreement by the end of that month.
(Reporting by Cassandra Garrison; Editing by Adam Jourdan and Diane Craft)