October 28, 2004
Argentina may fail to win support from a majority of bondholders by refusing to change terms of its offer to restructure $100 billion of debt in a new proposal to be sent to US regulators as early as this week, said former Argentine Finance Ministry official Miguel Kiguel.
“They can get 40 percent with the domestic holders but nobody knows what they can get on top of that,” said Kiguel, a former Argentine undersecretary of finance in charge of government bond sales who now runs the Center for Financial Stability in Buenos Aires.
The government plans to stick to its June proposal for swapping the old bonds for new securities in a transaction that would pay investors about 25 cents per $1 of defaulted debt, Economy Ministry spokesman Armando Torres said in an interview in Buenos Aires. Ecuador and Russia reached agreement with more than 90 percent of creditors after defaults in the past six years by offering about twice what Argentina is proposing.
Argentina needs to reach agreement with creditors to receive new loans from the International Monetary Fund, which halted disbursements in July in part because of delays in the debt negotiations. John Taylor, undersecretary of the US Treasury for international affairs, said that the US expects Argentina to have a “high participation” of bondholders in any restructuring accord.
“High participation is an important goal which we’ve stressed many times,” Taylor said in an interview in New York. “It’s important for Argentina. That is the nature of a good restructuring.”
Taylor declined to specify what level of participation the US wants Argentina to achieve.
The government plans to turn over the final proposal to the US Securities and Exchange Commission as soon as this week, Torres said. The Washington-based regulator will then take about two weeks to approve Argentina’s exchange proposal, Kiguel said.
John Nester, spokesman for the SEC said “there is no rule of thumb for a time to complete a review. It depends on the sufficiency of information provided by the issuer.”
Hans Humes, co-chairman of the Global Committee of Argentina Bondholders, which represents holders of about $35 billion of defaulted bonds, said in an interview on Sept. 13 that while the committee wouldn’t accept the government’s June offer, its repayment expectations were “not distant” from Argentina’s offer.
Argentina probably is seeking at least a 60 percent acceptance rate from creditors to go forward with the debt exchange, said Christian Stracke, head of emerging-market debt research at New York-based CreditSights Inc. Failure to garner 60 percent backing may prompt Economy Minister Roberto Lavagna to delay the exchange and re-start negotiations with investors, Stracke said.
“Argentina will stick to the original offer for now,” Kiguel said in an interview in Buenos Aires. “They always have time at a later stage to sweeten the deal.”
Lavagna said as early as September 2003 that Argentina will go forward with the exchange regardless of what percentage of creditors accept the offer. He said those investors who don’t accept the offer will be left out of the exchange.
Dozens of investors have already sued the government, including Dart Container Corp. President Kenneth Dart, saying Argentina can afford to pay more.
The IMF halted lending in a $13.3 billion loan program to Argentina and won’t resume financing until the government reaches a restructuring accord, IMF spokesman Thomas Dawson said Oct. 21.
Stracke said that Argentina will probably need about a 70 percent creditor acceptance rate to get the IMF to consider the exchange a success and resume lending. Francisco Baker, an IMF spokesman, didn’t return a phone call seeking comment.
Argentina’s offer is valued at about 25 cents on the dollar as measured by the discounted present value of the bonds’ payments.
Argentina’s 15 ½ percent bond due 2008, its most traded defaulted security, rose 0.05 cent on the dollar to 31.05 cents on the dollar at 11:35 a.m. in New York. The bond has climbed from 27 cents in early August, a sign that investors expect the government to improve its offer from 25 cents on the dollar.