By Marc Jones, Tom Arnold and Walter Bianchi
LONDON/BUENOS AIRES (Reuters) - Argentina's new debt restructuring offer won a tentative thumbs up from creditors as they digested the details on Monday, pumping up the country's bonds on hopes the two sides could strike a deal by an extended Aug. 4 deadline.
Two prominent funds, Gramercy and FinTech, said they would back the deal, though there was no immediate sign of whether it would gain the blessing of the biggest bloc of creditors, including BlackRock and Fidelity, which could torpedo any deal.
Argentina laid out an improved and "final" offer on Sunday that increased creditors' payments, shortened their wait time and changed key legal clauses that had become a source of tension.
The revised offer came after tensions flared with two major creditor groups and talks stalled in mid-June, as the grains powerhouse was battered by the coronavirus pandemic. It still has to be formalized with U.S. regulators.
"Considering everything that the country is going through, it looks to like a fairly good offer," said Alejandro Hardziej, at bondholder Pala Asset Management. He added that creditors might have liked a "GDP warrant" for extra payments if economic growth improves.
A deal is key for Argentina avoiding a messy and protracted legal standoff that could lock the country out of international markets and drag it further into recession.
"We look forward to supporting Argentina's offer as it provides... debt sustainability that is crucial for durable, high and inclusive economic growth," Gramercy and FinTech said in a joint statement.
Under the proposal, Argentina would start making payments in one year versus three in its original offer, made in April. Coupon payments start low but could rise to around 5%.
"The valuation gap with the latest bondholder proposals has shrunk considerably," analysts at U.S. investment bank Citi said in a note, calculating the gap at 4-5 cents on the dollar.
The bank expected a "sizable" proportion of investors holding the "exchange" bonds that were restructured last time Argentina defaulted to sign onto the deal, as the government had backed away from eroding their legal rights.
There might not be such high take up, however, from those with bonds sold under the country's previous president, Mauricio Macri, as their replacement bonds would be issued under terms offering less legal protection.
Argentine bonds, which have climbed over recent months as hopes grew for a deal, closed up almost 4% on average on Monday, though most remain at between 38-45 cents on the dollar.