Argentina scores record debt swap cutting $30 bln owed near-term

"Today we carried out the largest public debt swap in Argentine history in the domestic market," Finance Secretary Eduardo Setti wrote in a post on Twitter. While the cash-strapped government hailed the near-term debt reduction, S&P Global Ratings lowered its local currency rating for the country to "selective default" on what it described as "another distressed exchange" that pushed off debt payments to 2024 and 2025.

Argentina has completed its largest ever domestic debt management operation, officials said on Thursday, lowering near-term obligations by $30 billion over the next four months and pushing off payments beyond national elections later this year. The debt swap comes at a time of increasingly strained public finances, made worse by triple-digit inflation, a steadily weakening local currency, plus most recently a severe drought that slashed critical farm export income by some $20 billion.

The economy ministry said in a statement the debt swap reduced payments due between June and September by about 7.4 trillion pesos ($30.3 billion), with the transaction obtaining a 78% acceptance rate from debt holders. A government spokesperson hailed the operation as "very successful" earlier on Thursday before the details were announced on the swap, which is part of a wider push to restructure government debts and avoid default.

The operation cut government debt maturities for the remainder of this year by 64%, the economy ministry said, to 4.2 trillion pesos from 11.6 trillion pesos. "Today we carried out the largest public debt swap in Argentine history in the domestic market," Finance Secretary Eduardo Setti wrote in a post on Twitter.

While the cash-strapped government hailed the near-term debt reduction, S&P Global Ratings lowered its local currency rating for the country to "selective default" on what it described as "another distressed exchange" that pushed off debt payments to 2024 and 2025. "We consider this transaction distressed based on the likelihood of conventional default - absent participation of creditors - given the sovereign's pronounced macroeconomic vulnerabilities and limited ability to extend maturity and place paper in the local market without reliance on exchanges," the rating agency said in a statement.

The IMF, however, welcomed Argentina's debt swap, adding that the operation should safeguard debt sustainability. The debt swap follows similar but smaller domestic operations in January and March. Due to past defaults, global capital markets are largely closed to Argentina.

The swap was less than the $42 billion of looming debt that analysts had estimated the country would rework, of which just under half is held by private investors. Ahead of October elections, the center-left ruling Peronist coalition of President Alberto Fernandez faces an uphill battle to retain power amid a prolonged economic slump. Stiff challenges are expected from both the conservative opposition as well as a surging libertarian outsider who seeks to replace the local peso currency with the U.S. dollar.

($1= 244.45 Argentine pesos)

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