A group of debt holders from Argentina's largest province announced on Tuesday evening that they were rejecting Governor Axel Kicillof's proposal to postpone to may 1 the payment of a US$250 million bond that expires this Wednesday at noon.
As the LPO had advanced, the deal fell through after the Fidelity fund, the largest holder of the BP21 bond, announced that they were rejecting the provincial government's proposal. Peronist Kicillof, Cristina Kirchner's former finance minister, required to get the agreement of at least 75% of the bond holders to postpone the capital payment. Fidelity has about 16% of the maturing bonds but market sources told LPO that the rejection was widespread and would exceed the 25% limit that Kicillof has to avoid to get a deal.
The Ministry of Economy of Buenos Aires, headed by Pablo Lopez, said at midnight that they were not aware of the bondholders' announcement and delayed any information on how the offer is progressing until noon on Wednesday, when the deadline expires.
In a very brief statement, a self-styled "Steering Committee" said that they had decided to reject Kicillof's offer because they felt that the province had not given them a clear plan nor sufficient time to consider it.
The investment firms added, however, that they were still willing to negotiate and to consider new "proposals" from the province, but demanded a "comprehensive plan" that would address the province's entire debt, not just the bond that expires on Wednesday.
Argentina's largest province will go into default
In a very suggestive paragraph, the investment firms said they were willing to enter into "good faith negotiations" and demanded that such negotiations should be included in a "comprehensive economic plan".
Kicillof faces a race against time to reach an agreement or secure the funds to pay the maturity before the end of the grace period on February 10. If a solution is not found by then, the province could go into default.
The provincial government denied LPO reports that Fidelity had rejected Kicillof's offer. The administration has told LPO that "the process is still open so no results can be anticipated". "The mechanics of the process only allows for notice of acceptance, not rejection," the governor's spokespeople said.
"We understand that at this time rumors are proliferating to affect the good faith and transparency of the process. There is no note, no notice of rejection," they added.
But the failure of Kicillof's proposal also complicates Finance Minister Martin Guzman's strategy for renegotiating the national debt, as sources from the Finance Ministry admitted to LPO. Guzmán himself recognized on Tuesday in response to a question from this outlet that "a default (in the province) would be detrimental to all parties".
Market sources told LPO that Kicillof made a mistake in his strategy. "He made a bad offer, instead of making the payment of the bond conditional on the consent of the bondholders he only told them "I won't pay you now but I will pay you in May because that's when I'll get the deposit," the sources said.
As for the consequences that a default in the country's largest province would cause, Guzmán recognized that "clearly it would generate noise and would be a much more disorderly and disadvantageous solution," but he clarified that since "there is no cross-acceleration clause between the province of Buenos Aires and the Nation, a default in the province would not imply a contractual rupture of the public titles under New York law or the Nation".
The minister confirmed that the situation in the province once again places the government of President Alberto Fernández at a crossroads. Weeks ago, the president denied bailing out Buenos Aires in a move that the market thought was coordinated to measure the climate for a renegotiation of the national debt.
The perception of a coordinated move between the provincial and federal governments, and of a threat of a default that would never materialize (considering that the amount involved is quite modest), seems to have pushed the investment funds to redouble their bets and reject Kicillof's proposal.
The Casa Rosada will now have to decide whether to assist the Buenos Aires Province or let it default, which analysts consider too risky for the economy and for the renegotiation of the national debt, which Alberto wants to settle before March 31.
A small sign in that direction was given this Monday: the national social security institute (Anses) confirmed that it will renew for 180 days a letter for 263 million dollars that Kicillof was to cancel in the next few days.
