Accords with the World Bank, Repsol
SA and now the Paris Club have put Argentina on the cusp of
returning to international bond markets. The country has left
the toughest deal for last.
After a 20-hour meeting with officials from the Paris-based
group of creditor nations, which kept President Cristina Fernandez de Kirchner awake until 2 a.m., Argentina said
yesterday that it agreed to pay $9.7 billion over five years to
settle claims stretching back to the government’s record $95
billion default in 2001. South America’s second-biggest economy
hasn’t issued bonds in international markets since it stopped
payments.
Solving the remaining dispute with holdout creditors
including billionaire Paul Singer’s Elliott Management Corp. is
becoming more urgent with foreign-exchange reserves stuck near
an eight-year low. Argentina needs the money to fund investment,
defend its currency and make payments on restructured bonds,
while any proceeds from a U.S. bond sale could be seized by
creditors backed by court orders saying they’re owed billions.
“It’s clearly positive that Argentina finally resolved
this issue” with the Paris Club, said Jorge Mariscal, chief
investment officer for emerging markets at UBS Wealth Management
in New York. “The big obstacle to tackle is still the
holdouts.”
Before reaching the Paris Club accord, Argentina also
settled claims with five companies in the World Bank arbitration
arm, improved economic data reporting at the request of the
International Monetary fund and compensated Spanish oil company
Repsol for the seizure of YPF SA two years ago.
Holdout Creditors
Since succeeding her late husband as president, Fernandez
has imposed the harshest currency controls since the aftermath
of the 2001 financial crisis and nationalized $24 billion in
pensions and the country’s flagship airline Aerolineas
Argentinas SA.
The extra yield investors demand to own Argentine bonds
over U.S. Treasuries, at 8.5 percentage points, is the highest
in emerging markets after Venezuela.
About 93 percent of creditors accepted losses of 70 cents
on the dollar in the country’s 2005 and 2010 debt
restructurings, while other holdout investors, including
Elliott, sued for better terms.
“There’s just 7 percent of creditors left who haven’t
voluntarily restructured their debt, and of that 7 percent
there’s 1 percent that are vulture funds that have promoted
lawsuits in the U.S.,” Cabinet Chief Jorge Capitanich said
yesterday during a press conference in Buenos Aires. “We have a
final step so that either via the judicial system or voluntary
agreement we can end this process of restructuring our debt.”
‘Serial Predators’
Fernandez called the holdout hedge funds “serial
predators” during a speech yesterday.
In a bid to enforce $1.7 billion in court judgments
Argentina refuses to pay, Singer in March sued the country and
Elon Musk’s Space Exploration Technologies Corp. for rights to
two launch-services contracts owned by the South American nation
and in 2012 tried seizing a naval vessel docked in Ghana.
The hedge fund also has a case against the nation before
the U.S. Supreme Court. The court justices may decide as soon as
next month whether to review lower court orders requiring
Argentina to pay holdouts in full when it makes payments on
restructured bonds.
Argentina said in a May 27 filing it would require $15
billion to pay all holdouts.
‘Sit Down’
“Like its obligations to the Paris Club, Argentina has had
obligations to private creditors outstanding for over a
decade,” Jay Newman, a senior money manager at Elliott, said in
an e-mail. “Argentina should finally sit down and negotiate
with its private creditors, who stand ready to reach a good-faith resolution.”
Without an accord with the holdouts, it’s too costly for
Argentina to issue bonds abroad, according to Vladimir Werning,
head of Latin America research at JPMorgan Chase Co.
“The political embarrassment of locking in current double-digit yields remains a constraint for the sovereign to issue,”
Werning said in a telephone interview from New York. “The main
hurdle before the government would actually embrace market
access is the private creditor holdout problem.”
Argentine bonds have slid 1.5 percent this month, pushing
their average yield to 10.9 percent as investors shift away from
the country’s securities before the U.S. Supreme Court decision,
which could cause a default.
That comes after a rally that’s handed investors returns of
40 percent over the past year as Argentina improved relations
with international investors and took steps to improve its
economic imbalances.
Priced In
Yesterday the country’s bonds due in 2033 jumped more than
1 cent on the dollar to 77.75, the first increase in 10 trading
days and the most in three weeks.
The accord with the Paris Club was largely reflected in
bond prices before the announcement, according to Mauro Roca, a
senior Latin America economist at Goldman Sachs Group Inc.
“It’s not a game-changer,” Roca said in a telephone
interview from New York. “It doesn’t mean that Argentina can
now return to markets. This will happen once the holdouts issue
is resolved.”
The Paris Club agreement will also diminish reserves as the
country relies on them to make payments, Roca said. That may be
partly offset by inflows from credit lines. The accord allows
Paris Club members’ export credit agencies to resume lending to
Argentina, the group said in a statement.
The agreement with the Paris Club may also help shore up
swap lines with other countries’ central banks, JPMorgan’s
Werning said.
Credit Rating
Moody’s Investors Service, which cut the country’s credit
rating to seven levels below investment grade in March, won’t
upgrade it from Caa1 until those inflows have materialized, said
Gabriel Torres, an analyst at the company.
“We’re not incorporating this as a positive until we hear
about more money coming in,” Torres said in a telephone
interview from New York. “But at the very least this hangover
is gone.”
Argentina still needs to improve its fiscal accounts, curb
inflation and boost reserves for a credit upgrade, Shelly Shetty, the head of Latin American Sovereigns at Fitch Ratings
Ltd., said in a telephone interview from New York.
Last year, Argentina’s central bank reserves fell $12.7
billion.
Plans to issue debt will depend on needs to finance
specific development projects, Argentine Economy Minister Axel Kicillof said yesterday.
“No one can live just off cash,” Kicillof said.
To contact the reporters on this story:
Camila Russo in Buenos Aires at
crusso15@bloomberg.net;
Katia Porzecanski in New York at
kporzecansk1@bloomberg.net
To contact the editors responsible for this story:
Brendan Walsh at
bwalsh8@bloomberg.net
Daniel Cancel, Bradley Keoun
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