The Government has to face a deadline this Tuesday around $2.6 billion of foreign currency debt, which is in the hands of the bondholders who participated in the 2020 exchange. As that day is the holiday for Independence Daythe management of Javier Milei will make the payment the next day. It will be the first in a series of financial commitments that will impact net reserves over the next few weeks, just as the central bank is going through the most difficult moment for its coffers and the market perceives signs of exhaustion of the exchange rate scheme.
This week’s expiration is the second and last of the year for foreign currency securities, scheduled in the restructuring carried out by the former Minister of Economy Martin Guzman. Holders of all the bonds in question will collect the semi-annual coupon of interest and those who own the AL30 or the GD30 They will also receive the first payment of the capital amortization.
Specifically, bondholders who have the AL29 or GD29 Those holding AL30 or GD30 will receive US$0.5 for every US$100 of nominal value; those holding AL30 or GD30 will receive US$4.375 for every US$100; AL35 or GD35 creditors will receive US$1.8125 for every US$100; AE38 or GD38 creditors will receive US$2.125 for every US$100; AL41 or GD41 creditors will receive US$1.75 for every US$100; and GD46 creditors will receive US$1.8125 for every US$100.
According to calculations by the Congressional Budget Office (OPC), this implies that the State has to disburse US$2.558 millionThe Government is seeking to have creditors reinvest the foreign currency they receive to support the prices of securities and reduce country risk. To this end, the Central Bank has ordered the end of the rule that required the transfer to a bank account of dollars received from capital or interest payments before using them again in the capital market (the restriction remains in force for foreign currency obtained from financial dollar transactions).
Although it is not certain what investors will decide in light of the recent falls in bonds and the uncertainty about the sustainability of the exchange rate scheme, it is certain that Luis Caputo’s plan requires a considerable drop in the risk country (to the 800 basis point zone, almost half of the current level) in the face of the sword of Damocles represented by the 2025 foreign currency debt maturities: In a sort of self-inheritance of the mega-indebtedness cycle of 2016-2018 with the bondholders first and the International Monetary Fund later (and through rescheduling), next year some 100,000 bonds will expire. US$17 billion between public securities, BOPREAL and commitments with the IMF and other organizations.
Dollar, debt payments and reserves
For now, this week’s payment will impact the BCRA’s international holdings. To what extent will fall net reserves It depends on which components are considered for its calculation. For example, the economic research group GERES estimated that at the end of June they were positive by US$799 million. Thus, after the payment, they would fall to around US$1.8 billion in the negative.
However, for Portfolio Personal Investments, they are still considerably negative today and after Wednesday they will fall “to the area of -US$5.2 billion”, which makes it difficult to “think of an exit from the Cepo with ‘very positive’ net reserves to intervene without external financing”.
The truth is that the latest IMF review makes it clear that the reference set for the reserve target is that net holdings will fall in the third quarter and will barely rebound in the fourth. Thus, if new borrowing were not to arrive, they would close the year in negative territory.
The fact that the BCRA halted its foreign currency purchases in June (a month that is still in the peak season for the coarse grain harvest) set off alarm bells. The fact is that in the second half of the year comes the most unfavorable season for the flow of dollars and to that are added the debt payments of the coming weeks. In addition to the transfer to bondholders, the Government will cancel between July and the first days of August due dates of capital and interest with the Fund and with other multilaterals, and will pay the first installment of the BOPREAL: in total, it is about US$4.5 billion.
This picture, among other factors, was at the base of the renewed exchange rate pressure of the last few days. Even more so after the conference on Friday, June 28, when Caputo and Santiago Bausili did not take up the challenge of the market, the IMF and numerous economists’ claims about the signs of exhaustion of the exchange rate scheme and, instead, ratified the continuity of the dollar blend and the crawling peg of 2% monthly and the opening of the cepo will be kicked off for a third stage of the plan.
For the next few days, The economic team is betting on calming devaluation pressuresreflected in the expansion of the exchange rate gap to 50%, from the stimulus for banks to raise interest rates. To this end, on Thursday the BCRA ordered that LECAPs purchased on the secondary market also not count towards the limits on financing the public sector that financial institutions have, with the aim of improving the transmission of rates to fixed-term deposits. It remains to be seen what will happen with the monetary policy rate once the new monetary regulation letters that will replace the passive repurchase agreements are launched. And also whether an increase in yields in pesos will manage to contain financial dollars.
Source: Ambito
