Argentina

Investors are souring on how much they can recoup from a potential Argentine default as President-elect Alberto Fernandez procrastinates on plans to save his nation from financial ruin, Bloomberg News reported. Argentine dollar bonds due in 2028 now fetch as little as to 36 cents on the dollar -- a drop of about 20 cents since the immediate aftermath of the leftist’s surprise primary victory in August. A mountain of debt, staggeringly high inflation and little sign of who Fernandez will pick for his cabinet -- and which policies they will implement -- have bondholders begging for clarity.

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Argentina must repay $5 billion by the end of 2019. It doesn’t have much to work with. While the country’s foreign reserves total a still somewhat robust $43 billion, that figure shrinks markedly once untouchable assets such as dollar deposits of everyday Argentines and a credit line from China are stripped out, Bloomberg News reported. Analysts surveyed by Bloomberg News estimate that the amount that policy makers can actually freely spend is no more than $12.5 billion. One of the analysts, Siobhan Morden of Amherst Pierpont Securities, puts the figure at as little as $6.5 billion.

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A Third Way for Argentina: Reprofiling

Despite allegations to the contrary, “reprofiling” is not an Argentine euphemism for debt restructuring. It is a distinct liability management exercise that is optimal, from a welfare standpoint, for certain well-defined sovereign debt crises. In our (preliminary) opinion, Argentina’s situation meets the required criteria for a reprofiling that would defer its maturities for a relatively short period, while not reducing either the face value of its obligations to private creditors or their contractual coupons, the Financial Times reported in a commentary.

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Argentine economists predicted a worsening recession and a slightly higher inflation forecast of just under 56% in a central bank monthly poll of analysts released on Monday, the first since the victory of leftist Peronist candidate Alberto Fernandez in the country’s presidential election, Reuters reported. Inflation was seen at 55.6% for the year, up from 54.9% in the same central bank poll last month. It will ease to 42.9% by 2020, slightly higher than the previous prediction, according to the survey of 45 analysts.

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As Argentina careens toward a default, investors are paying a premium for bonds that they think will give them more negotiating power, Bloomberg News reported. They’re delving deep into legal rules governing the securities, searching for language covering collective action clauses that come into play when borrowers want to change contract terms, as in a restructuring. Notes that require a higher percentage of investors to sign off on any deal often trade at a premium of about 25% over those with a lower threshold. Bondholders have good reason to think the issue will soon be in play.

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Argentina’s central bank is setting a price floor under the volatile peso in hopes to avoid a sharp plunge in the currency after an opposition-won presidential election last Sunday shifted the country firmly back to the left, Reuters reported. The peso edged up on Thursday to 59.68 per dollar, with the central bank offering U.S. currency in the exchange market at a fixed 59.99 pesos per greenback, effectively putting a floor on the trade.

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A group of bondholders is turning to one of the most recognized names in Argentine debt underwriting for guidance as it gears up for restructuring talks with President-elect Alberto Fernandez’s government over some $50 billion in debt, Bloomberg News reported. Marcelo Delmar, the former head of Latin American debt capital markets at BNP Paribas SA, has been offering advice in recent calls with some of Argentina’s largest creditors, according to people familiar with the matter.

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Alberto Fernández already has a full in-tray of economic woes to solve when he takes office in December. The country is grappling with recession, the peso is being caged by currency controls and a pile of debt repayments looms ominously on the horizon, the International New York Times reported on a Reuters story. The center-left Peronist, who beat conservative incumbent Mauricio Macri on Sunday, will take on the top job from Dec. 10, with a juggling act to solve thorny issues like poverty while keeping the economy on track and fending off angry creditors.

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In this South American nation stretching from lush jungles in the north to the edge of the Antarctic at its southernmost point, the country’s 45 million people are weighing a vote for change ahead of presidential elections on Sunday, Bloomberg News reported. At the heart of the decision is economic hardship that has roiled Latin America’s No. 3 economy since the middle of last year. It has hurt President Mauricio Macri, who under pressure had been pushing austerity measures to rein in debt.

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Argentina’s bondholders are braced for steep losses when the government attempts to tackle its $101bn debt burden after downbeat meetings with IMF officials and associates of Alberto Fernández, the presidential frontrunner, in Washington last week, the Financial Times reported. More than 20 bondholders met a team of IMF officials to discuss the outlook for Argentina ahead of the country’s general election this Sunday.

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