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Argentina debt deal opens door for US$13b provincial revamp

[BUENOS AIRES] Argentina's provinces from Buenos Aires to wine region Mendoza are readying to revamp a combined US$13 billion in debt, after a successful sovereign debt restructuring opened the door for local governments to resolve their regional crises.

The South American country's government restructured almost US$110 billion in dollar debt in recent weeks, dragging itself out of default, a major victory after a standoff with creditors had threatened to scupper a deal.

"It was crucial for Argentina to close this deal to have a more friendly and attractive deal for the provinces," said Gerardo Mato, chairman of global banking Americas at HSBC, who was involved in the sovereign negotiations.

He said that prices of sovereign and provincial bonds would be much lower if the central government had remained stuck in default.

The sovereign deal on foreign-law bonds gave creditors around 55 cents on the dollar, which enabled the government to restructure 99 per cent of the eligible debt. That saw ratings agencies upgrade the country and its risk index fell sharply.

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Gabriel Monzón, an economist and head of Grupo Latina Consultores, said the sovereign revamp would give confidence to the provinces to reach similar deals.

"The provinces are cheering about their restructurings because the success of the national government put a ceiling on their negotiations," he said.

At the front of the queue is wealthy and populous Buenos Aires province, which is racing to restructure over US$7 billion in bonds to escape from default as it grapples with a nationwide recession that has left it struggling to pay its bills.

The province faces a deadline on Friday to strike a deal, though that cut-off could be extended. Mendoza, known for its Malbec wines, is also facing a Friday deadline after an earlier offer was rejected by its creditor committee.

Argentina brokerage Balanz said in a report that Mendoza looked close to sealing its deal, while creditors were waiting for Buenos Aires province, known as PBA, to sweeten its offer.

"Our feeling with PBA is that investors would ask for better conditions than the ones the sovereign got," it said.

Cordoba formally presented a US$1.69 billion restructuring proposal on Friday with a two-year grace period on capital repayments, which it said "adopts sustainability criteria promoted by the nation with particular characteristics of the province".

Other provinces include oil region Neuquén restructuring around US$700 million; Chubut US$680 million; Mendoza US$590 million; Entre Ríos US$500 million, and Salta US$390 million, according to government data and private reports.

"Market expectations are optimistic and everything would indicate that while things are moving at a slow pace, most provincial negotiations will bear fruit," said consulting firm Portfolio Personal Inversiones.

REUTERS

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