The debt exchange in pesos announced by the Minister of Economy, Sergio MassaI would have a adhesion floor between 60% and 80% over the total maturities involved, according to estimates by economists and financial analysts.
This Monday, the Ministry of Economy issued a call for the debt exchange in pesos maturing in the second quarter of 2023for two baskets of bonds, one that includes exclusively inflation-adjusted securities (CER), and a second with a combination of 70% CER-adjusted and 30% dual bonds -adjusted for inflation or exchange rate-, with maturities in 2024 and 2025.
In total, the exchange will include titles for a amount estimated at $7.3 trillion, lwhich are in the hands of public bodies, banks, investment funds, insurance companies and private individuals.
What does this new debt swap mean and why is there so much talk about it?
The PPI (Personal Investment Portfolio) research team pointed out to Télam that “The public sector owns around 38/39% of the remainder of these instruments, while the regulated players (banks and insurers) would contribute an additional participation of between 20/25%”, predicting a floor of at least 60%-65% adherence to the operation.
They added that “it is worth noting that some market sources estimate that public participation could even be between 6 and 10 percentage points higher” and “Massa would have an acceptance floor of between 62/70% for the swap.”
However, from PPI they warned that “despite the strong support obtained by the minister of regulated private companies, we still have doubts as to whether this operation can fully mitigate the market questions about the ‘ball of weights’, that would be a pending task for the next government”.
“Our estimate of the surplus of pesos due to the exchange rate reaches around 7.9% of GDP, which deteriorates the probability of removing the stocks as soon as a new administration takes office,” they told the Télam news agency.
For his part, Mauro Mazza, from BullmarketBrokers, said that “the amount of banks, insurers, state companies, FGS and the Central Bank accounts for more than 80% of the total, leaving some 2.3 trillion pesos in the hands of other private, both companies and individuals.
This last amount, based on the price of the MEP dollar, would add up to around “8 billion dollars that they would be left out of the swap,” Mazza estimated.
Meanwhile, Javier Casabal, fixed income strategist at Adcap Grupo Financiero, said that they expect “the exchange to have an adhesion of more than 60%.”
They pointed out that since Sergio Massa “took office in August 2022, has been extending terms quite successfully through exchanges of this style -it has already issued a dual bond-, and keeping in mind that hedging against inflation is the main demand of the market”.
Pending issues after the debt swap
In line with Mazza, Casabal said that “although we do not see a risk of a run against the titles, there is still the risk of the spot price with liquidation”which will be seen after the level of acceptance of the 20% held by private unregulated companies has been analysed.
For Claudio Caprarulo, Analytica’s chief economist, “it still remains to be seen the percentage of adherence of the market to the exchange, therefore So far the important thing is the symbolic gesture: the Government seated the banks and obtained their support to ward off the ghosts of a default on the debt in pesos,” he said.
He indicated that with the operation the Government “will achieve lengthen the expiration profile temporarily and save time to improve conditions until they arrive in 2024 and 2025, because the goal now has to be to stabilize the economy and generate greater credibility until then.”
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