By Julie Wernau and Taos Turner
An end to a stalemate over Argentina's defaulted debt faces a
number of hurdles despite the country's new $6.5 billion offer to
U.S. bondholders Friday, said people familiar with the matter.
An agreement would have to contend with a number of thorny
issues in the U.S. and Argentina as large debt owners haven't yet
signaled their approval, these people said. Argentina is trying to
settle with these holdouts so it can return to the global bond
market.
The government's proposal was its first formal offer to U.S.
bondholders since Argentina defaulted on more than $80 billion of
debt in 2001, the largest government default at the time.
The offer represented 75% of the amount bondholders say they are
owed, and any deal is expected to serve as a model for settlement
talks with hundreds of other creditors who have sued the
government.
Most of the U.S. hedge funds that own the debt--including one of
the biggest creditors, Paul Singer's Elliott Capital
Management--haven't signaled their approval of the offer, say
people familiar with the matter. Analysts believe that some of
these bondholders feel little pressure to rush to an agreement and
may be inclined to push for better terms.
While newly elected, business-friendly President Mauricio Macri
has pledged to end the standoff between Argentina and bondholders,
he is expected to face strong opposition from much of the
population and some members of Argentina's Congress, who have
derided bondholders as "vultures."
Hundreds of smaller debtholders must also get on board with an
agreement. There is a risk that these mostly local investors could
try to scuttle a deal that works for big U.S. hedge funds.
Argentina's negotiators have already left New York City, the
setting last week for the most recent meetings to break the
stalemate, a sign that no immediate agreement is expected, say
people briefed on the matter.
"It's not time to pop the champagne," said Charles Blitzer, an
economist and former senior IMF staffer, who has been involved in
many sovereign-debt restructurings. "It's this kind of unilateral
offer that got them into trouble five and even 10 years ago. They
need to communicate with more creditors and actually
negotiate."
The default issue has been a lingering and painful problem for
Argentina because it effectively bars the government from borrowing
any money in the international capital markets. The new
administration views a global bond offering as crucial for raising
new capital to stimulate an economy mired in recession.
Mr. Macri has some reasons for optimism. The Finance Ministry
said in a statement that some creditors, including Dart Management
and Montreux Partners, had already agreed to accept the offer.
Representatives of those firms couldn't be reached or declined to
comment.
Even Mr. Singer has said as recently as July that his firm would
be willing to negotiate with Argentine officials and accept a
discount to full value.
"In the past, these hedge funds, particularly Elliott, have said
'we're entitled to full payment,'" said Mark Cymrot, a partner with
BakerHostetler in Washington, D.C. "The truth is, you can't get a
very determined sovereign to pay."
That Argentine negotiators, including Financial Secretary Luis
Caputo, traveled to New York to meet with bondholders is a step
forward. Mr. Macri became personally involved, holding a phone call
with the U.S. District Court-appointed mediator last week. By
contrast, U.S. bondholders' request last year to resume
negotiations received no response from the former Peronist-led
government.
Yet people on both sides think there is much more work to be
done.
Any deal would have to overcome significant political
opposition. Former President Cristina Kirchner made blaming the
holdouts a pillar of her political discourse. Posters and banners
proclaimed "Fatherland or Vultures," implying that Argentines had
to choose between defending their country or betraying it by siding
with the bondholders.
On social-media networks over the weekend, opponents of the
government's offer accused Mr. Macri of selling out, saying that
even if Argentina paid the holdouts 75% of what they are owed, Mr.
Singer would be making a windfall.
"Being friendly with creditors, taking on debt and seducing Wall
Street ends up leading to banking and currency crises," Alejandro
Vanoli, Argentina's central bank president under Mrs. Kirchner,
said in a Twitter post on Saturday.
Some smaller Argentine debtholders may continue to hold out.
Jennifer Scullion, a partner at Proskauer Rose LLP, representing
bondholders in eight class-action cases in New York, said Argentina
hasn't included them in negotiations. The two sides are arguing
over how to quantify the size of those classes, and Ms. Scullion
said she would move for an injunction if the government settles
with other bondholders before they have agreed to a deal with her
clients.
"These are literally the same bonds," she said. "We have the
same rights."
Some think the hedge funds would be wise to make a deal,
considering that 93% of Argentina's bondholders have already agreed
to offers that pay about 30 cents on the dollar.
"They will never find a more market-friendly administration in
Argentina than this one. So, if they reject what is now on
offer--say out of greed--than they will probably have to wait a
whole lot longer to get paid," said Jan Dehn, head of research at
London-based asset manager Ashmore Group, which oversees about $50
billion. His firm owns Argentine bonds but isn't part of the U.S.
group dealing with the government.
Write to Julie Wernau at Julie.Wernau@wsj.com and Taos Turner at
taos.turner@wsj.com
(END) Dow Jones Newswires
February 07, 2016 16:04 ET (21:04 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.