By Cassandra Garrison and Rodrigo Campos
BUENOS AIRES/NEW YORK (Reuters) - Buenos Aires bonds added to recent losses on Tuesday after the province asked holders for an extension on a more than $250 million payment due later this month, dragging Argentina's debt lower as well.
The provincial amortization payment, due in two weeks, is tied to a 10.875% January 2021 bond
"The overall purpose of the proposed amendments is to temporarily relieve the Province from certain of its short-term financial obligations by deferring the next principal payment date, originally due on January 26, 2020, to May 1, 2020," a filing by the province said.
The Buenos Aires debt negotiation is seen by some as a trial balloon for how Argentina will handle the renegotiation of more than $100 billion in sovereign debt inherited by the administration of center-left President Alberto Fernandez.
Argentine national bonds were also trading lower, with the January 2028 benchmark <040114HQ6=> down 1.5 points, according to Refinitiv data. Over-the-counter bonds
Buenos Aires Governor Axel Kicillof, in a series of tweets, blamed the province's "unsustainable" debt on the administration of his predecessor, Maria Eugenia Vidal, an ally of conservative former President Mauricio Macri. Vidal lost her re-election bid to Kicillof, who belongs to Fernandez's coalition, in October.
"The debt policy of the previous management is summarized as follows: much more debt, more expensive debt, dollar debt and shorter maturities that fall on the current management," Kicillof said.
Buenos Aires Province Economy Minister Pablo Lopez said in an interview with a local radio station that he was confident the provincial government would obtain enough support from bondholders to postpone the payment. It needs consent by 75% of bondholders to go into effect.
"God, I hope they pay in May," a private holder of the 10.875% bond due in 2021 told Reuters, asking not to be named.
"My personal impression is that they bought time to wait for the national government to negotiate the sovereign debt," the bondholder added.
Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities in New York, said in a Tuesday note to clients that the province's payment delay might not bode well for holders of sovereign debt.
"There is no cross default between the sovereign and the provinces; however, a potential hard default for the Province of Buenos Aires raises the concern about cashflow stress and an orderly restructuring for any potential litigant risks or economic contagion from weaker domestic sentiment," Morden said.
A spokesman for Economy Minister Martin Guzman declined to comment on the fall in Argentine national bonds on Tuesday.
Provincial bonds maturing this year and through 2027, including the January 2021 maturity, tumbled on Monday after Guzman confirmed the national government would not help Buenos Aires Province, Argentina's largest, with the payments in an interview published over the weekend.
Fernandez, who set a March 31 deadline to renegotiate Argentina's rampant public debt, reiterated that the national government would not bail out the province in an interview on Monday night.
Argentina has been spiraling into a debt crisis since 2018. Macri, who fell out of favor with voters exhausted by crippling inflation and a weakened currency, was defeated by Fernandez on Oct. 27.
The Fernandez administration, which took office on Dec. 10, is in talks with bondholders and other creditors, including the International Monetary Fund.
(GRAPHIC: Argentina Country Risk - https://fingfx.thomsonreuters.com/gfx/editorcharts/ARGENTINA-DEBT/0H001QXW5BED/eikon.png)