Dollar. Uncertainty among companies, which will have to renegotiate US $3.3 billion

It wasn't the best day to be a financial manager for a company in debt. Since last night, those in that position knew that today would be hectic, but as the day progressed, uncertainty and doubts about the future of companies with debt in foreign currency grew. The Central Bank has released the "big print" of the new restrictions, but little is known about how the refinancing will end up being implemented, and what consequences they will have.

According to the president of the Central Bank, Miguel Pesce, between October 15 and March 31 – a period in which the entity will only sell 40% of the currencies that each company needs to pay off its obligations – there are corporate debt maturities of US $3.3 billion. Specifically, according to the Government, "there are no more than 10 companies that have debt maturities until December and which are asked to restructure part of their capital."

Central Bank spokespersons added that they are in talks with these companies to bring their proposals closer together. In fact, companies that have maturities before December 31 must present their negotiation plan before the end of the month, but it was not clarified if it is for the entity to organize itself with the sale of dollars, or if it is to supervise the restructurings.

In a dialogue with LA NACION, most of the companies facing capital maturities during the period in which, in principle, the rule applies, still did not have too many answers to give to their creditors. "We are analyzing it", their spokespersons repeated before the consultation.

"The situation is quite complex; renegotiating a negotiable obligation with multiple creditors is very complex. It is one thing to do it for market reasons, and another because they force you. They push you into default with the money in your account. I have honestly never seen it before," said the executive of a company impacted by the new restrictions, still unable to believe the news.

The Central Bank decided last night that for companies with debt of more than US $1 million, the dollars they can buy in the foreign exchange market will not exceed 40% of the capital maturing, and the rest "at least, has to be refinanced by new external debt with an average life of 2 years". This condition applies when the debt incurred is not with the parent company, nor with an international organization or official credit agencies.

Central Bank spokespersons confirmed that, for the remaining portion, the indebted firm should use its treasured notes or, failing that, refinance. Accessing the financial exchange rate would not be possible because the company has already made dollars in the official market.

"It was an unexpected measure, one that increases the risk of investing in Argentina," said Lorena Reich, director of the LatAm region for Lucror Analytics. The restriction goes straight to the heart of companies leveraged in the capital market with dollar notes (ON), a further complication for companies with large financing needs.

Paradoxically, the main one affected by this measure is YPF, the state-controlled company, which has to face a US $415.8 million payment next March, after 41% of the creditors of its US $1 billion ON did not enter into the restructuring proposed last July.

Other companies facing maturities in the short term, according to the consulting firm 1816 and based on information from the Electronic Open Market (MAE), are Banco Hipotecario (which is in the process of exchanging), IRSA, Cresud, Genneia, AES, San Miguel , Newsan and Aeropuertos Argentina 2000, which has just completed an exchange, but will still face capital maturities for those who did not accept the proposal, although these will be less than the limit of US $1 million per month.

In the short term, funding through ON will be very limited. "Although there is liquidity in the local market, the depth and the amounts are not the same as in the international market, a condition that limits companies that need funds for very important investments," Reich summarized.

For companies already in debt, the cost can be high, warns attorney Luciano Cativa, a partner at FB Tax Legal. To begin with, there are refinancing costs. In addition, to refinance, incentives must be offered, such as higher interest and greater collateral guarantees, he pointed out.

On the other hand, such costs will have an impact on the company’s reserves and share capital, which could put these debtor firms in a situation of mandatory capital reduction or forced dissolution.

At the moment, mandatory dissolution or capital reduction cases are suspended until the end of the year, by law, but "the accounting and tax effects of the debt refinancing will have an impact not only on this current period, but also in those that begin after 1 January 2021 ", warned the lawyer.

More obstacles to operate

The Central Bank’s new regulations come in a context in which it is practically impossible for companies to pay for imports and turn dividends abroad. This began a year ago, after the primary elections, but controls deepened last May, when the BCRA stopped selling dollars to companies that had funds abroad.

To compensate for the lack of foreign exchange, companies began to resort to the financial markets to acquire dollars through cash settlement (CCL), but then the Central Bank made it impossible for them to access the foreign exchange market for 90 days if they operated in the stock market. Now, with this week's measures, the companies are also forced to freeze bonds for 15 days (parking), which increases the risk due to high volatility.

"They are not giving you many options. The exit doors are closed, but companies need to make payments to operate: they cannot pay their debts, cannot import, cannot get dividends; they can practically do nothing that a company needs to function normally," said Jimena Vega Olmos, a partner in the law firm MHR Abogados.

But importers are not the only ones with problems. The government also established more controls for export companies seeking local financing, as it requires commercial banks to request authorization from the Central Bank before approving a loan.

"With this measure, they practically forcing the large exporting companies to finance themselves abroad. We do not know if they will get it, since Argentina’s creditworthiness is bad," said Vega Olmos, concluding: "How easy will it be in practice for an external creditor in the current situation to give credit to the exporters, or accept to refinance the debt in the short time allowed by the negotiation rule?"

By: Sofía Terrile and Sofía Diamante