Bondholders see chance to break Argentina logjam

03/10/2009 | Thierry Ogier

Momentum is growing among bondholders for a deal with Argentina that could put an end to its seven-year exile from international debt markets.

Some of the investors who have held more than $20 billion of defaulted bonds since 2005 – when they rejected an exchange offer – have indicated they now may be gearing up for a deal.

“[The Argentine authorities] are serious this time”, Edwin Gutierrez, emerging markets portfolio manager at Aberdeen Asset Management, said. “If it is a reasonable offer, we will tender bonds.”

The lingering dispute with the bondholders that rejected the 2005 restructuring – representing about a quarter of the total – may be resolved, “probably by the end of this year,” Gutierrez told Emerging Markets. The details of the offer have not yet been unveiled, but is expected to involve “new cash as part of the deal”.

The Argentine government is understood to have begun filing paperwork with the US Securities and Exchange Commission ahead of a possible restructuring deal. This may eventually herald a return to the debt market. “They will get new financing out of this,” Gutierrez said.

Argentina initially defaulted in 2002, after an economic crash and devaluation of its currency. Since then it has relied on domestic markets for financing – but this year, in the wake of the global financial crisis, borrowing requirements have increased sharply while financing has become much tighter.

CSFB estimates that Argentina needs to borrow $10.7 billion this year, up from $5.9 billion last year, although the requirement will decline to about $8.2 billion in 2010.

Scepticism greeted the new Argentine economy minister, Amado Boudou, when he said earlier this year that his country intends to return to international markets this year. Last month, Boudou said that he will seek to renegotiate Argentina’s defaulted $6.7 billion of Paris Club debt from sovereign creditors, a key step to allowing Argentina to return to global credit markets.

But speculation about a possible way out of the deadlock have pushed gains in Argentine bonds in financial markets in recent weeks.

A bill will have to be passed by Argentina’s Congress to sanction a new offer to holders of defaulted bonds. Meanwhile, Cristina Fernandez de Kirchner’s government, which suffered a bruising electoral defeat in last June’s parliamentary elections, has adopted a more conciliatory approach with sovereign creditors.

Nicolas Eyzaguirre, Western Hemisphere director at the IMF, told Emerging Markets: “We are looking forward to normalising relationships with Argentina” ahead of meeting with Argentine officials this weekend. “The ball is in their court. We expect some progress.”

Dominique Strauss Kahn, managing director of the Fund, said: “We are making a very good step forward. I hope in the near future we will be able to resume normal relationships with Argentina.”

Although defaulted bond holders consider the IMF’s relations with Argentina as a separate issue, Aberdeen’s Gutierrez said “an agreement would be indicative that they are OK to play ball”.

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