BlackRock, Ashmore, Fidelity and the other 10 investment funds that make up the AdHoc group of creditors in Argentina declared the negotiations with the country's Minister of Economy, MartÃn GuzmÃ¡n, to have been unsuccessful. They directly blamed the Alberto FernÃ¡ndez administration for the failure.
The funds also announced their willingness to pursue litigation against the country: "Given the failure of the negotiations, our group is now considering all the rights and resources available to us as trustees to the millions of depositors we serve around the world," the group, which is represented by White & Case LLP, said in a statement.
Until now, even with the default on credit default swaps, the parties had been willing to settle out of court. This is the first time that the group headed by BlackRock - and therefore CEO Larry Fink - has made explicit their willingness to go to trial.
"Although we made further improvements to the proposal, the authorities have chosen to remain in default, increasing the risks of economic deterioration in an economy that has urgent needs for new investment and access to international capital markets," said the group. Since April, AdHoc has been involved in several efforts to swap debt with Argentina. The statement arrived shortly after GuzmÃ¡n revealed the new proposal by the government, which remained at 50 cents on the dollar.
It should be noted that in its statement the AdHoc group did not mention GuzmÃ¡n and only referred to the president, who in the past week requested his Mexican counterpart, President LÃ³pez Obrador, to intercede on Argentina's behalf in the negotiations with BlackRock.
The creditors' offers
The two proposals - the one presented jointly by the AdHoc group and the bond holders of the Exchange, and the one from the Group of Bond Holders (GB), which is led by Gramercy - have significant differences, but they both coincide in that they represent a saving of $40 billion in interest for Argentina over the next nine years and they clear the way of capital maturities for the rest of Alberto FernÃ¡ndez's term. Thus, despite their different characteristics, they are around 55 cents on the dollar in net present value, at a discount rate of 10%.
According to the creditors, the negotiations failed "despite the fact that we presented a new proposal with significant improvements focused on increasing the initial cash flow relief that President FernÃ¡ndez said was a priority to navigate the immediate challenges facing his country, while at the same time ensuring long-term debt sustainability. Our latest and improved proposal provides ample fiscal space for Argentina to implement responsible policies to address the immediate economic and social challenges facing Argentina, including in response to the COVID-19 crisis, while preserving value for international bondholders".
In this respect, creditors recalled that their counterproposal involved a 42% reduction in the average coupon, to 3.6% per annum, "a rate that is below even the best rated sovereigns in emerging markets" and "a combination of particularly low cash coupons and maturity extensions offers more than $23 billion in relief over the 4-year period, providing cash relief to Argentina for 90% of contractual payments".
GB Group's counter proposal requires an additional fiscal effort of 0.2% of GDP and that of the Exchangeable Notes while the AdHoc Group's "represents only 0.3% of one year's GDP, distributed over the next ten years"
The president himself, in a televised address earlier this evening, said, "We will do everything we have to do, as long as it does not mean a greater effort for Argentines".
"Despite making further improvements to the proposal, the authorities have chosen to remain in a state of default, risking further immediate and long-term damage in an economy in desperate need of additional investment and access to international capital markets. Argentina has been offered a comprehensive and sustainable debt restructuring offer by the same investors who would support the country for decades to come. The government has moved away from that solution," the creditor's statement said.