Argentina to Unveil $20 Billion Debt Swap Today (Update3)
By Drew Benson, Eliana Raszewski and Tal Barak Harif
April 15 (Bloomberg) -- Argentina will later today unveil its plan to restructure $20 billion in defaulted debt held out of a 2005 settlement, a move that may allow the country to access international debt markets for the first time in almost a decade.
Argentina’s borrowing costs fell to the lowest since 2008 after President Cristina Fernandez de Kirchner made the announcement in Buenos Aires. The extra yield investors demand to own Argentine bonds instead of U.S. Treasuries narrowed 20 basis points, or 0.20 percentage point, to 5.98 percent at 1:34 p.m. in New York, according to JPMorgan Chase & Co. That’s the smallest yield gap since July 2008.
“It’s important to keep doing things well so that our companies, small and big, can access international loans,” said, Fernandez said in Buenos Aires. Fernandez said the terms of the swap will be announced at 5:30 p.m. New York time.
Argentina’s offer will probably be worth about 54.5 cents on the dollar if the country excludes past-due payments on warrants linked to economic growth, according to Siobhan Morden, a debt strategist with RBS Securities Inc. The country is restructuring debt as the economy emerges from an economic slowdown. South America’s second-largest economy grew an average of more than 8.5 percent a year from 2003 to 2008, before slowing to 0.9 percent last year, according to the national statistics institute.
New Value
The offer will be worth more if the government includes the past-due warrant payments and less if Argentina shaves past-due interest on bonds issued in 2005, said Morden.
The total value, through December, for investors who participated in the 2005 offer was 57 cents, according to Exotix Ltd., a brokerage that specializes in distressed securities.
Exotix quoted Argentina’s defaulted untendered dollar bonds at a midpoint of 49.5 cents on the dollar today, about the highest since the 2001 default. The debt traded as low as 11 cents after the collpase of Lehman Brothers Holdings Inc. in September 2008, according to Amir Zada, a New York-based director at the firm.
Defaulted Argentine bonds are held by Wall Street investors including Gramercy, Stone Harbor Investment Partners and Elliott Management Corp., as well as tens of thousands of individuals, many of them in Italy.
High Participation
“Argentina needs a high level of participation in order to be sure that it can access the markets after that swap takes place,” said Guillermo Osses, who helps oversee $50 billion in emerging-market assets at Newport Beach, California-based Pacific Investment Management Co., manager of the world’s biggest bond fund. “Otherwise they’re staying in the same situation.”
Argentina needs to borrow $12.5 billion this year, about $6 billion of which has not been lined up yet, according to estimates from Credit Suisse Group AG. RBS Securities forecasts the nation’s budget deficit may double this year and spending may rise at an annual rate of 30 percent.
The president has set aside $6.6 billion in central bank reserves to pay debt due this year after lawsuits by holders of defaulted debt kept the country from selling international bonds.
A settlement would conclude a five-year standoff. The president’s husband and predecessor, Nestor Kirchner, offered creditors new securities worth about 33 cents on the dollar in the swap five years ago and vowed at the time not to renegotiate with those who rejected the offer.
Financing Needs
Economy Minister Amado Boudou said in an interview yesterday at his office that he expects investors holding at least 60 percent of the defaulted debt to participate in the restructuring.
The restructuring will allow Argentina’s 23 provinces to sell bonds as they struggle to cover rising financing needs, according to Standard & Poor’s.
Provincial financing needs will jump to 26 billion pesos ($6.7 billion) in 2010 from 18.5 billion pesos last year, Veronica Sosa, an analyst at Buenos Aires research company Economia y Regiones, said earlier this month. The local governments’ deficit will swell to 13 billion pesos this year, equal to 0.8 percent of gross domestic product, from 9 billion pesos in 2009, she said.
The government budget forecasts economic growth of 2.5 percent this year, while Economy Minister Amado Boudou said earlier this month that 2010 growth exceed 5 percent.
Presidential Decree
With financing tightening, Fernandez issued a decree last month tapping $4.4 billion in central bank reserves to pay debt due to private bondholders this year. She said April 9 the move would allow the country to use its reserves in an “intelligent” way.
The lower house of Congress rejected the decree in a vote. The senate has yet to take it up.
Argentina’s peso rose 0.2 percent, the most in two months, to 3.87 per U.S. dollar from 3.8763 yesterday.
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