BUENOS AIRES (Reuters) – Bondholders on Monday rejected a debt restructuring proposal by Argentina’s Buenos Aires province and said the offer would likely lead to a default, adding tension to a larger debt crisis plaguing the South American country.

The group of bondholders, which holds more than 40% of the province’s external debt, said in a statement the offer proposed by Buenos Aires was “not based on credible policy efforts or forecasts that bondholders can support.”

“The terms of the offer do not reflect the province’s reasonable payment capacity and the offer will not lead to a consensual resolution,” the statement said. Buenos Aires is Argentina’s largest and wealthiest province.

“Rather, it will lead to a failed debt restructuring, likely default and a protracted period of uncertainty that will inhibit investment and economic recovery in the province,” it added.

The province’s proposal from last week, which is part of a $7.148 billion debt restructuring, included a three-year payment halt and large cut to interest payments. It amounted to around $5 billion in relief over the next decade.

(Graphic: Buenos Aires bonds link: https://fingfx.thomsonreuters.com/gfx/editorcharts/xlbpgnnbwvq/eikon.png)

Buenos Aires faces a bond payment of around $200 million due on May 1, with a grace period of 10 days, said Matías Rajnerman, chief economist at Ecolatina consultancy. Failure to pay as of May 11, would therefore trigger a default.

That would come just after holders of Argentina’s national debt are expected to accept or reject a proposal to restructure around $65 billion in foreign-law sovereign bonds. Those bondholders have also signaled they will likely reject it.

“So the fate of the province is tied to the fate of the nation, in terms of debt restructuring,” Rajnerman said.

The Buenos Aires proposal followed a structure similar to an offer to bondholders by Argentina’s government as the country seeks to avoid default during an economic crisis worsened by the coronavirus outbreak.