Bloomberg News

Argentina Bonds Rally as Fernandez Says Debt Talks Are On

June 20, 2014

President Cristina Fernandez de Kirchner

Talks with billionaire Paul Singer, who has a court order requiring Argentina to pay him $1.5 billion tied to defaulted notes, would mark a turnaround for President Cristina Fernandez de Kirchner after years of calling creditors who sued the country “vultures” seeking to profit from misery. Photographer: Maxi Failla/AFP via Getty Images

President Cristina Fernandez de Kirchner said Argentina will go ahead with talks to resolve a dispute with holdout creditors, sending the country’s bonds to the biggest gains in emerging markets.

“We want to meet our obligations with 100 percent of our creditors,” she said in a nationally televised address. “We only ask that they give us fair conditions for negotiation that are in line with the Argentine constitution and national laws.”

Fernandez’s comments provided some clarity to investors whipsawed this week by conflicting statements from government officials about the nation’s next steps after a U.S. court decision this week compelling it to pay holders of defaulted debt in full. Wall Street banks from JPMorgan Chase & Co. to Nomura Holdings Inc. had said Argentina was bluffing with threats to walk away from talks with billionaire Paul Singer that could end the decade-long dispute.

“After having no strategy with this whole holdout situation, the government is finally realizing that they need to negotiate,” Juan Carlos Rodado, head of Latin America research at Natixis, said in an e-mail. “She needs to show in the end that she is responsible.”

Restructured bonds due 2033 jumped 2.6 cents to 77.8 cents on the dollar, the highest price since the U.S. Supreme Court on June 16 left intact a lower-court ruling that jeopardizes a June 30 coupon payment on the notes if the holdouts go unpaid. The extra yield investors demand to hold Argentine debt over U.S. Treasuries narrowed 1.29 percentage point to 6.88 percentage points as of 4:10 p.m. in New York for the biggest rally in emerging markets, according to data from JPMorgan.

That would be the lowest so-called yield spread on a closing basis since Aug. 2011.

Avoid Crisis

Fernandez said she’s ordered Economy Minister Axel Kicillof to speak with the nation’s attorneys in New York to seek fair conditions for negotiations with holdouts and the district judge.

The government is intent on regaining access to overseas credit markets, according to Javier Kulesz, a Latin America managing director at Nomura. Central bank reserves, which the country uses to pay debt, are hovering near an eight-year low.

“The ultimate objective for Cristina is to make it to the end of the term without a crisis in Argentina,” Kulesz said yesterday at an EMTA event in New York.

Talks with Singer, who has a court order requiring Argentina to pay him $1.5 billion tied to defaulted notes, would mark a turnaround for Fernandez after years of calling creditors who sued the country “vultures” seeking to profit from misery. Pressure is mounting on her to negotiate after losing this week a last-ditch attempt at appealing the decision.

Fernandez, who on June 16 called the court ruling “extortion,” didn’t call the litigating hedge funds vultures today or mention plans to skirt the ruling using a debt swap.

‘Playing Hardball’

The orders were put into effect June 18. The nation can no longer put off Singer’s claims because the ruling blocks the government from making a $900 million June 30 interest payment on bonds issued as part of restructurings in 2005 and 2010 without paying the holdout creditors in full.

Less than a day after a government lawyer told a federal court in New York that the country is willing to negotiate an agreement, Cabinet chief Jorge Capitanich said yesterday that there’s no government mission going to New York for talks and the country is working on paying bondholders under Argentine law to skirt the U.S. ruling.

“Both sides are playing hardball,” Vladimir Werning, head of Latin America research at JPMorgan, said in report yesterday “Sticks as well as carrots are elements likely to be used.”

Creditor Accords

An attorney for NML Capital Ltd., a unit of Singer’s Elliott Management Corp., told the district court judge that with a 30-day grace period after the June 30 payment deadline, the government has six weeks to sit down and negotiate, which is more than enough time.

Elliott is willing to consider accepting Argentine bonds as payment for defaulted debt, a person familiar with the company’s strategy said June 18. Any decision to accept the securities would depend on the terms offered, the person said.

As part of a push to raise financing overseas for the first time since its record $95 billion sovereign default, Argentina has begun showing a willingness to settle long-standing disputes in recent months.

In May, it reached a $9.7 billion accord with the Paris Club group of creditors, three weeks after compensating Madrid-based Repsol SA for seizing its Argentine unit, YPF SA, in April 2012.

YPF American depositary receipts rallied 5.1 percent to $33.73 in New York trading, the highest since December.

“In Argentina, we have always thought that we are more clever than the rest of the world,” Claudio Loser, a former International Monetary Fund director who now heads research firm Centennial Group Latin America, said yesterday at the EMTA event. “At the moment of truth, they’ll understand they have to negotiate.”

To contact the reporters on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net; Daniel Cancel in Buenos Aires at dcancel@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net


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