January 17, 2020

Argentina’s Chubut Bonds Tumble as Province Seeks Debt Overhaul
(Bloomberg) -- Argentina’s Chubut province bonds plunged to the lowest since November after local officials said they wanted to renegotiate the debt.The bonds due 2026 slid as much as 8 cents to 63.3 cents on the dollar after its economy minister Oscar Antonena proposed reducing coupons and suspending principal payments for four years on $650 million of the overseas bonds. Antonena told local reporters that the province is sending the proposal to its local legislature along with a fiscal readjustment plan that would shrink its bloated public sector.The province’s plan comes as other Argentine issuers affected by a plunge in the peso and an economic slowdown struggle to pay their debts. President Alberto Fernandez’s administration is seeking to renegotiate the country’s debt with private creditors and the International Monetary Fund. Earlier this week, the Province of Buenos Aires -- Argentina’s most populous province -- also requested to push back a $250 million principal payment due Jan. 26 until May.Chubut’s proposal to its local congress includes a four-year hiring freeze on government jobs, opening a voluntary retirement plan for public employees, cutting political appointments by as much as 20%, and raising taxes by 50% over the next four years, Antonena said. Chubut will have an estimated fiscal deficit of 22 billion pesos ($367 million) this year. Its public sector has ballooned to 65,000 public employees, compared to 22,000 in 2003, the minister said.“What we face today isn’t a debt problem, it’s a problem with the structure of our salary load,” Antonena told local reporters on Jan. 15. “For the proposal to be successful, we need to reach debt sustainability after changing the province’s fiscal structure.”Out of Chubut’s $855 million total debt, around 80% is held in international bonds, according to a government presentation. The $650 million of bonds Chubut is seeking to restructure are backed by oil and gas royalties that are paid directly into a trust, which meant the government couldn’t access the funds to pay for public expenses like salaries. The province has been warning it would seek to modify its debt load since January 2018.Chubut’s proposal, which would delay maturities without imposing a loss on the principal to creditors, mimics the federal government’s strategy to stimulate the economy by freeing up funds otherwise earmarked to pay the debt. But Chubut’s large fiscal imbalance means just delaying payments may not be enough, according to Roger Horn, a senior emerging-markets strategist at SMBC Nikko Securities America in New York.“A few years of debt service relief is not going to do too much to help a province like Chubut, which can’t even pay teachers on time,” Horn said. “It’s nice to see them talk about no haircut, but there’s a possibility that a haircut might be the only solution to right-size their debt burden, especially after last year’s currency devaluation.”Province officials declined to comment for the story.The province, received a 1 billion peso ($17 million) advance in funding from the federal government Jan. 7, citing “urgent commitments” arising from budgeting constraints and debt payments as the reason.“It’s imperative to reprofile the debt, considering that other provinces like Buenos Aires also said they can’t pay for their commitments,” Antonena said. “We’re working alongside the national government, which is working with us as it seeks to take the entire country, not just Chubut, out of this national crisis.”To contact the reporters on this story: Scott Squires in Buenos Aires at ssquires4@bloomberg.net;Jorgelina do Rosario in Buenos Aires at jdorosario@bloomberg.netTo contact the editor responsible for this story: Carolina Millan at cmillanronch@bloomberg.netFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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