Argentina settles with “holdouts” – basket case now becoming investment bet

Among democracy’s greatest benefits is how it stimulates positive action through political leadership changes. In South Africa, the return of Pravin Gordhan as Finance Minister has sparked a raft of constructive developments impossible just two months earlier. Similarly in Argentina where the new Government of Mauricio Macri is applying its abundant energy to good effect. After 16 years of failed 21st Century Socialism, Argentina voted the former businessman and Buenos Aires major Macri into power last year. I had the privilege of seeing Argentina’s new President and his team up-close in Davos and left with the feeling that one of South America’s basket cases is poised for a strong rebound, Macri promised to act quickly on the drawn out battle with “holdout” investors in Argentina bonds as settlement was critical to re-open access to global capital markets. Less than a fortnight after returning home, he has a deal. Maybe time to consider an Argentina ETF? – Alec Hogg           

By Katia Porzecanski and Chiara Vasarri

(Bloomberg) — Argentina agreed to pay $1.35 billion in cash to a group of Italian investors who hold its defaulted bonds, marking the first time the Latin American nation has reached an accord with holdout creditors who refused to participate in earlier restructurings.

The amount that will be paid under the deal represents 54 percent of the creditors’ claim of $2.5 billion in principal and interest on notes Argentina defaulted on in 2001. They agreed to accept payment of 150 percent of the $900 million in face value, according to a statement from Task Force Argentina, an Italian bondholder association known as TFA. The accord is pending approval from Argentina’s congress and TFA board members.

Mauricio Macri, presidential candidate of the Cambiemos (Let's Change) coalition, gestures to his supporters after the presidential election in Buenos Aires, Argentina, November 22, 2015. Conservative opposition candidate Macri comfortably won Argentina's presidential election on Sunday after promising business-friendly reforms to spur investment in the struggling economy. REUTERS/Ivan Alvarado TPX IMAGES OF THE DAY
Mauricio Macri, presidential candidate of the Cambiemos (Let’s Change) coalition, gestures to his supporters after the presidential election in Buenos Aires, Argentina, November 22, 2015.

The agreement, which marks a first step in efforts by newly elected President Mauricio Macri to settle with all of Argentina’s so-called holdout creditors, comes after the country obtained a $5 billion loan from seven Wall Street banks to boost foreign reserves last week. Finance Ministry officials are in New York this week to talk with hedge funds led by Elliott Management and other creditors that represent about $9 billion in claims. Former President Cristina Fernandez de Kirchner had refused demands from investors that sought better terms than those offered in two debt restructurings after the country’s record $95 billion default.

Macri, who took office Dec. 10, has vowed to resolve the litigation with bondholders and bring the country back to international capital markets.

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“Our stakeholders should be happy considering what they were offered at the beginning,” Nicola Stock, the head of TFA, said in an interview from Rome. “I expect the Italian holdouts to get paid between May and June.”

Argentina restructured about 92 percent of its debt in 2005 and 2010, imposing losses on creditors of about 70 percent. The Italian bondholders have litigated their case since 2006 in the International Centre for Settlement of Investment Disputes.

Of the 180,000 Italians originally represented by TFA before the restructurings, about 70 percent have entered into the exchange agreements or died, according to Carolyn Lamm, an attorney who represents the bondholders at White & Case LLP. Most of TFA’s members are between 60 and 80 years old and invested between $25,000 and $50,000 in Argentine debt, she said.

The so-called retail investors last had a hearing at the ICSID in June 2014, according to Lamm.

Read also: Argentina – Tipped for rapid recovery after years of miserable socialism

The payment will provide one-third of the accumulated interest the Italian bondholders were seeking, Argentine Finance Minister Alfonso Prat-Gay said Tuesday in a televised press conference. The bondholders in New York, with whom Finance Secretary Luis Caputo met Monday, have asked for an “unacceptable” amount in interest, he said.

“Retail or individual investors would probably be more flexible than institutional investors and this is a considerable improvement over” the 2010 restructuring offer, said Siobhan Morden, the head of Latin American fixed-income strategy at Nomura Holdings Inc. “It doesn’t give you the same indication for the New York holdouts, because clearly that is a tougher crowd.”