S&P Global Ratings upgraded its long-term and short-term local currency sovereign credit ratings on Argentina from SD and SD, to CCC- and C, respectively, as well as its national scale rating from SD to ‘raCCC+’.
“We have raised our ratings in Argentina’s local currency to ‘CCC-/C’ since we consider that the selective default is corrected after the delivery of new instruments to the holders of,” they explained from the bond entity.
The rating agency said that “the outlook for long-term assessments is negative” and that its assessment of transfer and convertibility risk remains “unchanged at ‘CCC+'”, and remarked that the volatility of the government “limits the ability” to implement better changes in economic policy.
“Argentina carried out a peso debt swap last week that we classified as a distressed swap given the sovereign’s pronounced macroeconomic vulnerabilities and its very limited ability to extend maturities and place debt in the local market without continually relying on trades, third since August 2022,” wrote S&P Global Ratings.
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Since the new instruments under the exchange were delivered to the bondholders, S&P Global Ratings is calling the “disadvantageous condition” exchange, equivalent to a breach of agreement, as “cured.”
The negative outlook on long-term assessments reflects risks related to pronounced economic imbalances and political uncertainty before and after the 2023 national elections, it was reported.
The rating agency remarked that the international capital markets are closed to Argentina and stressed that “disagreements within the governing coalition and internal opposition disagreements limit the sovereign’s ability to implement timely changes in economic policy.”
“We could lower the foreign currency ratings in the next six to 12 months in the event of unexpected negative policies or negative political events that undermine already limited access to financing,” he said. S&P Global Ratings.
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The significant ones would recover in the execution within the framework of the Extended Facility of the IMF (SAF) would complicate the access to financing from the International Monetary Fund (IMF) and, possibly, from other multilateral credit institutions, the entity remarked.
“This scenario would probably further decrease the confidence of local investors and it would make it difficult to access the peso debt markets, which would exacerbate the need to resort to central bank financing in the midst of a high elevation, which would lead to a downgrade of the credit rating”.
The greater pressure in the local financial markets, including the deposits of the banking system, or difficulties in the management of the Central Bank’s debt (the Letras de Liquidez del Banco Central [LELIQ]) could also lead to lower valuations.
Finally, at such low qualification levels, “We generally view debt swaps as disadvantageous and amount to a default.”
S&P Global Ratings said they could raise foreign currency valuations in the next six to 12 months if there is a “track record of successful execution under the SAF” and “how the policy will alleviate funding challenges in the local market and provide a blueprint for addressing major currency issues.” Argentina’s structural macroeconomic imbalances”.
“We can also raise the ratings if there is a pronounced economic recovery, which supports stronger fiscal results that ease the pressure on the government’s financing needs,” they clarified.
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