Settlement would be key for country to regain access to foreign capital markets
A deal with the so-called “vulture” funds could be reached next year, president-elect Mauricio Macri said yesterday.
Asked if a settlement was possible with the minority of US creditors that did not accept Argentina’s debt-restructuring offers in 2005 and 2010 and are suing the country for a bigger payday, Macri told Reuters: “Yes, of course.”
A deal would allow Argentina, which has been mostly excluded from global capital markets since its record default on US$100 billion in debt in 2002, to regain access to dollar-denominated credit and ease an acute shortage of hard currency.
Macri made his comment about a possible debt deal as he greeted well-wishers after presenting his Cabinet in Buenos Aires City’s botanical gardens. He did not say what the terms of an eventual agreement might look like.
According to analysts, striking a deal will be key for Macri’s chances of issuing new debt at lower interest rates than the country is being offered at present. That will be vital in maximizing the Central Bank’s firepower if the restrictions on the dollar market are lifted as Macri promised on the campaign trail. Without enough dollars, the value of the peso could plunge, causing inflation to soar and risking social instability.
“The backbone of Argentina’s new growth strategy is to reach an agreement with the holdouts,” said Alberto Bernal, chief market strategist at US-based XP Securities. “Macri needs to get this done.”
Macri also promised to open the country’s economy to investors and reduce taxes on exports in a bid to attract more dollars, but new debt would minimize the dependence on that cash.
“If they can’t tackle the holdout situation then they will be as financially constrained as Cristina Fernández de Kirchner’s government was,” said Stuart Culverhouse, head of research at Exotix, an emerging markets broker.
The US judge hearing the case brought by NML Capital’s Paul Singer, who rejected Argentina’s previous offerings, wants the government to negotiate a deal. The restructurings offered about 30 cents on the dollar, while Singer and the other holdout funds sued for full repayment of defaulted debt.
Griesa sided with the latter last year, freezing Argentina’s debt payments to the majority of bondholders until the remaining seven percent agree to terms. That triggered International Swaps and Derivatives Association (ISDA), to say that Argentina underwent another default in 2014.
International credit rating agencies have also said the key to upgrading the country’s credit rating lies in reaching a settlement.
Negotiating team
The negotiating process will be led by Luis Caputo, the former head of Deutsche Bank’s Argentina unit and ex-chief of Latin America debt trading at JPMorgan Chase who will be Macri’s new Finance secretary.
As a Wall Street insider, Caputo has access to a lot of big names from the global financial world.
“Caputo knows markets; he’s a true trader,” Rafael Di Giorno, a director of Proficio Investment in Buenos Aires who worked at Deutsche Bank at the same time as Caputo, told Bloomberg. “He’s well known in the market. If he has to sit down with Paul Singer, he probably makes two phone calls to get the meeting. He’s credible and presentable.”
Macri, however, is likely to face accusations about being too soft on a group of investors who placed bets against the country.
Both outgoing President Cristina Fernández de Kirchner and the election’s runner-up Daniel Scioli have said Macri prioritizes a deal with the “vultures” regardless of the terms and how they could affect the nation.
Herald with Reuters, online media