Default and restructuring. What is happening with corporate debt in Argentina
The word "default", a national ghost in Argentina, is not only a nightmare for governments, but also for companies. During the quarantine, defaults by two companies dedicated to domestic consumption, Ribeiro and Grimoldi, and the exchange offers launched by historically solid companies set off alarms for corporate debt specialists. They wonder if the coronavirus may be the final blow to the finances of some Argentine firms and if a chain default is expected .
In an almost paralyzed economy, and which has already come from successive bad drinks since the beginning of 2018, the risk exists, but it grows or decreases depending on the currency in which the debt is issued and under what legislation (local or foreign), something similar to what happens with sovereign debt except that, in the case of firms, negotiable obligations (ON) are issued and not sovereign bonds.
A company with its finances in the red has two alternatives: restructure or defaul. The first is more common when the debt is issued under foreign law and there are greater possibilities of conflicts in the courts with unfavorable resolution; the second, when the ONs are issued under local law.
"There is no sector that is saved from having complications with its debt," explains Gustavo Neffa, director of Research for Traders. "In addition to the consumer companies, there are oil companies indebted to Vaca Muerta, surrounded by the abrupt drop in the price of oil; there are Construction companies that were very solid financially, but today are struggling due to the paralysis of the real economy, and there are energy companies, with depressed demand. "
In the case of oil companies and energy companies, in addition, the debt is in dollars. The most challenging year will be next, because it will be loaded with significant maturities of ONs, such as YPF, Pan American Energy, Telecom and Mastellone, among others. And, in such a challenging international market, there is no brand or name that ensures a favorable destination.
For José Dapena, director of the Finance department of Ucema, the default of other companies is expected and it is enough to look outside of what happens in the public market, in which each default is reported. "Privately you see check rejections and trust problems," he says.
The other restructurings
The specialists in finance agree that the cases of Grimoldi and Ribeiro were particular: both were hit hard by the fall in consumption and by devaluations, especially the shoe store chain, which imports a large part of what it sells. At current rates, debt in pesos is easier to refinance through banks, explains Mariano Marcó Del Pont, director of Silver Cloud Advisors.
"The problem is the companies that in recent years have taken a lot of dollar debt and today are not in a position to meet the payments, or yes, but they do not have the physical dollars. Allowing access to the foreign exchange market to pay bonds or loans dollar-denominated banking should be respected so that no inconvenience occurs, "he adds.
In any case, the renegotiation of sovereign debt and the global outlook uncertain by the coronavirus adds noise to those who are already seeking to refinance or exchange their obligations. Such is the case of the Ezeiza and Aeroparque concessionaire, Aeropuertos Argentina 2000, the energy company MSU Energy and the construction company Raghsa, factotum of the Le Parc buildings, all three with dollar maturities and revenues reduced by the coronavirus. The companies launched their bids during the full quarantine and are still awaiting a response from their debt holders.
The specialists add that what happened with the offer of the airport concessionaire, which today obtained 85% acceptance, will set a precedent with respect to what happens with the others. For now, unlike what happened with the country's debt, these swaps are friendly and even beneficial for creditors.
Despite the fact that the company making the offer is financially sound and has a reputation as a "good payer", the international context is not on Argentina's side. Lorena Reich, director of the Latam region for Lucror Analytics, affirms that there is low appetite for risk globally by Covid-19. If a possible sovereign default is added to that data, then corporate debt would be in the worst case scenario.
A poorly leveraged private sector
Issuing negotiable obligations is not the norm in Argentina. Neffa calculates that the corporate credit of all companies in the international market is equivalent to 5% of GDP, while in Peru or Chile, that percentage rises to 25%. "We do not have a private sector leveraged [in the capital market]; due to the paralysis of activity due to the pandemic, there will be quite a few problems, but not derived from leverage," he explains.
The level of indebtedness of Argentine companies is low, the respondents agree, and it is conscientiously low. This is how Reich describes it, adding that the managers of finance of local companies take into account the volatility of the country and the region.
In the midst of a somewhat muddled situation for this small world of corporate debt, in the last week positive news was added for companies that want to issue or already have debt in pesos. The decision that the Common Investment Funds (FCI) should have at least 75% of their assets invested in local assets and in pesos could turn over US $ 1 billion into this type of instrument, says Dapena. Although they compete with sovereign and provincial bonds, negotiable obligations also fall into that category.
By: Sofía Terrile