Argentina to swap peso debt to ease US$35-billion default fear

Argentina will give investors the chance to exchange holdings of local debt into new bonds in a bid to ease fears of a default on the government’s US$35 billion of local debt coming due in the second quarter. Economy Minister Sergio Massa said the government would offer investors two swap options to exchange local bonds coming due between April and June. The government is seeking to build the local bond curve to 2024 and 2025, Massa said in a broadcast video statement.

Argentina has as much as seven trillion pesos (US$35 billion) in peso-denominated bonds maturing in the second quarter of the year, according to Economy Ministry officials. “We want to leave behind the idea that Argentina is always weeks away from a default,” Massa said. “This will allow us to clear up any uncertainty for 2023.”  As investor uncertainty mounts before a primary vote for the presidency in August and general elections in October, the government is seeking to swap the notes for longer-term maturities to avoid low rollover rates close to the vote.

The swap will offer investors inflation-linked bonds and so-called dual instruments, according to a person with direct knowledge of the matter. In the past, dual bonds have paid out the higher yield from between two options: a dollar-linked option that depends on a devaluation of the official peso or a CPI-linked rate. The swap is expected to take place on March 9, people said.

President Alberto Fernández said the plan would grant Argentines confidence and protect people’s savings in pesos. “This strengthens the position of the state and gives us peace of mind to thing about an accurate and sustainable debt programme,” Fernández wrote in a tweet.

Economists from Argentina’s main opposition coalition slammed the plan earlier, saying it would only add to fiscal woes for a new administration that takes over in December.

Here are some of the details of the swap, according to a person with direct knowledge:

– The first basket will include two CPI-linked bonds maturing in 2024 and another one maturing in 2025
– The second basket will include one dual bond and the same two CPI-linked bonds as the first basket
– The swap will include a put option of between 0 and 50 basis points
– The government will force public sector entities to participate in the swap
– Private sector banks are estimated to hold 20 percent of the bonds eligible to swap
– Total participation to the local debt swap is expected around 55 percent and 70 percent, according to the person.

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