The Government has enabled the possibility of a “hard dollar” debt swap: how it can affect bonds

The Government enabled the possibility of carry out a foreign currency exchange to clear the important maturities of 2025, while the country risk is located above 1,300 basis points Central Bank (BCRA) is under pressure to accumulate reserves. How can this possibility affect debt?

Yes ok The Government announced that it already has the dollars to pay the January paymentsdoubts arose when it modified, on Monday, by decree, an article of a regulation that allows it to restructure the debt in foreign currency without having to comply with three requirements: extend the term, lower interest or reduce capital. Previously, two of these three factors had to be met and it had to be in local currency, while now, the regulation does not oblige the Government to comply with the above.

He BCRA faces the difficulty of maintaining the level of reserves given the debt payment commitments, the difficulty of remaining a buyer in the wholesale market and the regularization of importer payments. Added to this are the interventions in the exchange market to maintain the gap at 20%. The Government seeks to tackle all these factors, while awaiting the real impact of the money laundering on the reserves and Think about the additional funds you will need in the short and medium term.

Debt maturities for the first quarter of 2025

According to Quantum Finance, the First and third quarters are the most difficult with due dates for US$6.8 billion each, concentrated in January and July 2025. “Essentially, it can be dealt with in two ways: taking on debt in foreign currency or using pesos generated via fiscal surpluses and debt in domestic currency to buy dollars from the BCRA, which leads –in turn– to looking at international reserves and the expected result of the balance of payments.”

“In addition, in these cases the BCRA should have the foreign currency to sell to the Treasury,” Quantum said in a recent report. There, it details the following points regarding the maturity profile:

• Intra-public sector: The maturities of provincial debt and the maturities of Bopreales, BCRA dollar bonds, will total US$2,174 million next year, including capital and interest.
• In dollars: US$17.285 billion in principal and interest, 55% of which is public securities and the remaining 45% is with multilateral entities. With the IMF, the maturity is US$2.7 billion in interest.
• Securities held by bondholders and private funds: US$6,096 corresponds to capital and US$3,458 to interest.

For this, from Quantum, they highlight that the role of the Treasury is central to accumulate at least an additional US$10,000 working on the maturities in 2025.

How can it impact debt?

This possibility that the Government enabled could represent a risk for the holders of these securitiesHowever, the market doubts that it will impact the “hard dollar” and chooses to trust that the The Government will avoid any harm at all costs. They even believe that it can be positive for clear the maturity profile and reduce payment concerns.

Gustavo Neffa, Director of Research for Traders ruled out in dialogue with Scope the possibility of a short-term exchange. “I believe that the Government will be smart enough to achieve both the super and commercial and the money laundering that will affect the Central Bank’s reserves and REPOS with foreign banks in order to avoid a swap in 2025 or 2026. “It’s not my base scenario. But if there is a swap, it will be voluntary,” he explained.

Regarding the impact on debt, he stressed that it could only affect the debt argentine legislation which has a lot of local and institutional state ownership that would have no choice but to enter into that exchange. “I assume that next year there will be a new agreement with the IMF and that payments of almost US$4 billion will be postponed,” he explained.

For Delphos Investment, “the exchange of the shorter ‘hard dollar’ securities (29s and 30s) would improve the maturity profile and would avoid the drain on reserves due to capital payments in 2025. In this exercise, it is essential that the PAIS risk continues to fall. Yesterday it ended at 1,311 basis points (11 less than on Friday) and was again on the verge of breaking 1,300 points.

The economist Marcelo Bastante, He also added that, “if an exchange eventually occurs tomorrow, it would be for bonds under local jurisdiction (i.e., the Bonar)” and stressed that the best thing that can happen is to continue lowering the country risk. “For the Government to be able to access the voluntary debt markets, the country risk should be below 800 points (some say 1000), We are not that far away.”

Juan Pedro MazzaStrategist of Cohen Argentina, finally highlighted that an exchange in itself “It’s not bad, as long as what is offered to holders has prospects of having a price similar to that of the market or higher. In exchange for that, the Treasury extends maturities. What we imagine is that the Government will come out and offer a higher coupon that reduces the capital charges for January and July of next year to stretch out the capital payments and thus make the debt more sustainable. In exchange, investors would receive higher interest for a longer time. As long as it is voluntary and negotiated and agreed upon by the parties, I would say it is a good thing.”

Today, one of the Government’s main assets is the confidence of investors. The renegotiation with the IMF, REPOS, loans with international organizations and other funds obtained will be followed by the market in the coming months.