Argentina’s road show in Italy this week has provoked massive protests. The atmosphere verged on the hostile and members of the Argentine delegation were forced to hire bodyguards. The protests led to the biggest single day fall in six months in the price of the country’s most-traded bond as concerns rose that more investors than expected are likely to reject the government’s restructuring offer.
According to Walter Molano, partner at BCP Securities, Argentina’s Ambassador to Italy describes relations between the two countries as reaching an explosive situation. Thousands of Italian investors are angry over the terms of the debt swap.
About 450,000 Italians hold defaulted Argentine debt, making them the biggest foreign owners and their participation is crucial to the deal’s success. Neutral observers, such as the IMF, have indicated that a participation rate of at least 75% is required for the deal to be credible, though the Argentine government has put forward a much lower threshold of 50%. Argentina’s offer closes on February 25.
Argentine bonds’ risk premium increased by nearly 3% against US Treasuries yesterday. These bonds now trade at an incredible 5209 basis points wider than comparable US Treasuries, according to the JP Morgan Emerging Markets Bond Index Plus.
There is real concern that thousands of investors will stay away from the restructuring and maybe, instead, go to the courts to seek a better deal. Dario Pedrajo, who manages $400 million in emerging market securities at Biscayne Americas Advisors in Miami, told Bloomberg: “People are factoring in a little more reality and there is a lot of concern about how successful the participation rate will be.”
The Argentine delegation, including Finance Minister Guillermo Nielsen, will next meet with Swiss bankers.