Argentina’s debt deal was hanging in the balance on Friday, with creditors and the government at an impasse, though most analysts expected the two sides to find a way to bridge the divide after having made significant progress over the last month.
The South American grains producer, long a boom-and-bust economy that in May defaulted for a ninth time, has twice improved a proposal to restructure around $65 billion in foreign debt, though talks with creditors hit a roadblock this week.
Creditor groups are demanding Argentina improve its offer further, while the government stance is that it cannot cede ground after raising its offer to around 50 cents on the dollar, plus an additional export-linked sweetener.
With a fluid deadline on Friday for a deal, expected to be extended, analysts said that despite the tensions, the two sides should be able to reach a deal.
“While it would have been better that negotiations continued with more constructive statements, this is not the first time the restructuring would seem to be at an impasse,” Morgan Stanley (NYSE:MS) said in a note.
It said that at a 10% exit yield, the government’s offer was worth around 49.7 cents, while the most aggressive counter from two groups, including names like BlackRock (NYSE:BLK), Fidelity and AllianceBernstein (NYSE:AB), was worth around 57 cents.
“At less than 8 points difference, it would not benefit either side to completely break away from negotiations,” the investment bank said, adding it stuck by its view that a deal would be reached in the third quarter of the year.
Goldman Sachs (NYSE:GS) said while risks had risen, the two sides may ultimately find a way to bridge a gap it calculated at 5 cents and “avoid a disorderly and contentious default.”
The country’s over-the-counter bonds rose on average 0.9% on Friday after losing ground a day earlier.
Argentina’s government has to decide whether to extend the previously delayed Friday deadline while it faces bond repayments at the end of the month that have a 30-day grace period. It defaulted on three interest payments in May.
“The negotiations with creditors are progressing and we are confident of finding a point of agreement,” center-left Peronist President Alberto Fernandez, who took office last December, said in a radio broadcast on Friday.
Siobhan Morden at Amherst Pierpont said in a note the options appeared to be returning to talks or using coercive tactics to force a resolution, though she added that “both sides lose from a protracted impasse or unresolved debt crisis.”
“We have been saying that the final phase is the most difficult, but it still seems illogical that a solution cannot be reached when both sides are so close,” she added.
Some were more negative, however.
Kim Catechis, investment strategy head at Martin Currie, said Argentina risked burning bridges with investors and cautioned about the rising prominence of populist Vice President Cristina Fernandez de Kirchner.
A bondholder with knowledge of the negotiations said the two sides seemed to be skirting around a deal.
“It’s like we’re sort of dancing around it. It’s a game, they are treating this like a continuation of a poker game that they want to keep playing,” he said.
Roger Horn, senior emerging market strategist at SMBC Nikko Securities America in New York, said that given the tough current context, the progress already made was notable.
“When you think about it, getting a recovery of almost 50 cents on the dollar from a serial defaulter with the Peronists in power, Cristina in the background, with a collapsed economy during a pandemic, doesn’t sound so bad,” he said.