News Column

Argentina set for debt default as crucial talks fail: Nation's negotiations with bondholders break down: Minister's offer rebuffed by American 'vulture funds'

July 31, 2014

Heidi Moore in New York and Angela Monaghan

Argentina was heading for its second debt default in 13 years early this morning after negotiations with bondholders broke down yesterday ahead of a midnight deadline in New York.

Axel Kicillof, Argentina's economy minister, said last night that US hedge funds had rejected the country's latest offer. Kicillof had been locked in intense negotiations with holdout creditors demanding to be paid the full value for bonds they own on which Argentina defaulted.

The talks have been overseen by a mediator appointed by a US judge who ordered Argentina to pay the creditors.

The court-appointed mediator, Daniel Pollack, confirmed - with only hours to go before the deadline - that no agreement had been reached and "the Republic of Argentina will imminently be in default".

Pollack said that default "is not a mere 'technical' condition, but rather a real and painful event that will hurt real people", including Argentinian citizens, exchange bondholders and the holdout investors.

Ratings agency Standard & Poor's had earlier declared some Argentinian bonds to be in "selective default" because the country did not make a $539m (pounds 320m) interest payment due on 30 June.

Kicillof denied that the country was in default and suggested Standard & Poor's was not an "impartial referee".

Argentina tried to make the payment but was prevented by a New York judge as part of an effort to force the country to settle a dispute with US creditors.

The judge, Thomas Griesa, ruled that Argentina could not pay the restructured bonds back unless it also paid more than $1.5bn to the holdout investors. Argentina has insisted it cannot afford to do both.

The ruling provided for a 30-day grace period, which expired last night. The payment was due to more than 93% of Argentina's bondholders who accepted the debt restructuring deals in 2005 and 2010, wiping out 70 cents on every dollar of their holdings, and which the government wanted to honour.

Kicillof, speaking at the Argentinian consulate in New York, said the country had offered the holdout bondholders the same terms as previous debt swaps.

Led by the country's president, Cristina Fernandez de Kirchner, Argentina has refused to pay investors she has branded "vulture funds", which were holding out for full repayment. The fear in Argentina is that any deal to repay the holdouts in full would trigger lawsuits from the bondholders who accepted the earlier deals, demanding to be paid on similar terms.

The government in Buenos Aires estimates that the associated liability could run to as high as $15bn.

The holdouts are US hedge funds spearheaded by the billionaire Paul Singer'sNML Capital, an affiliate of Elliott Management, and Aurelius Capital Management.

Markets had earlier been optimistic that a deal could be hammered out at the 11th hour, with the value of the country's bonds and shares rising.

Hopes were boosted by the prospect of a potential intervention by Argentina's banking association. Under the proposals, a consortium of Argentinian banks would offer to buy the country's debt held by the holdout investors.


Argentina's economy minister Axel Kicillof at a press conference in New York last night Photograph: Stan Honda/AFP/Getty

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Source: Guardian (UK)

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