Massa receives bankers to agree on an exchange of debts and clear deadlines for 12 billion pesos

The Minister of Economy Sergio Massa will receive a group of executives from banks and of insurance companies define what will be the new offer of exchange debt in pesos whereby the Ministry of Economy will seek to clear the maturity horizon of local currency bonds, which in the next four months amounts to more than 12.3 trillion pesos.

Work to reach an agreement with these two sectors, some of which hold the most Treasury peso securities in their portfolios, had begun a few weeks ago from the Ministry of Finance led by Edward Setty. Part of this path having already been covered, the negotiations will pass into the orbit of the head of the Palais des Finances and he will hold a meeting with bankers this afternoon in the Belgrano room, a few meters from his office on the fifth floor.

The heart of the conversations between the official offices and those of the heads of financial institutions was to shape a debt swap – the second so far in 2023- to lower the amount of payment obligations expected for the coming months, which are overwhelmingly concentrated before the elections primaries. For this reason, the security conversion mechanism sought by Finance is already beginning to address 2024 or 2025 as preliminary options.

The issue of deferring payments beyond the election process is a thorny one for bondholders, who have so far been reluctant to agree to terms beyond September. It is precisely for this reason that the negotiation with the private sector was initiated in advance. The last debt placement transaction was a sample of investor behavior towards peso debt: shorter terms and higher rates.

A report by Invecq underlined, in this sense, that February had ended with a to roll (percentage coverage of maturities) of 139% against payment obligations that remained on schedule after the first exchange in January. This means he has almost 40 pesos for 100 which expired in the second month of the year, implying a $405,000 million to finance the budget deficit and thus avoid the Central Bank having to issue pesos to help the Treasury.

Regardless, the report notes that “February marked the lowest investment period since the normalization of the peso debt market three years ago. The Treasury placed the debt at an average of 3.2 months (compared to 3.7 in November, 4 in December and 4.1 in January)”, notes Invecq. “The reasons for the shortening of the deadlines are obvious: the type of instruments proposed made it possible to overcome the difficulties in the short term, but do not encourage any request for financing from the Treasury after the elections”, they estimated.

The issue of interest rates was also special in February. In November, peso debt placements had reached a maximum rate cap when Finance granted a letter of discount, which configures the main peso financing instrument beyond pegged, at an effective annual rate of 118 percent. In December and January, interest was reduced to 114% there 112%respectively, although in February this streak was interrupted and moved up to 119% annual.

The report also puts on the table the growing weight of bonds that pay in line with inflation due to rising price indices. “A 45% of total funding for the month was indexed (40% REC and 5.2% dollar related) against 14.5% in January, 25.2% in December and 18.6% in November”, closes Invecq.

In this regard, the proposal that they have just defined in Economy in the round trip with banks and insurance, as evidenced by GlobeLiveMediawould include a composite basket in a 80% for securities indexed to inflation and one 20% of double bonus, which offers holders exchange and price hedging in pesos, whichever is most convenient for the investor. The final scope of this proposal will be determined at Monday’s Economics meeting between Massa and the bankers.

The “towers” of deadlines for the coming months amount to more than 12 trillion pesos between March and July and amounting to 16 billion until October. According to an estimate made by the consultant Equilibra, “if we look at the dynamic maturity profile (projection of the evolution of the CER and the exchange rate until the maturity of each instrument) more than 16 trillion pesos must to be paid (10% of GDP) between March and October,” they estimated.

Not all of this amount is in private hands, so it is expected that a relevant part, which is part of the investment portfolios of the public sector itself, will enter the proposed exchange. “Banks, both public and private, would be willing to enter into this exchange, which would guarantee the conversion of more than 70% of farms,” ​​said Equilibra.

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