UPDATE 5-Argentina clinches landmark debt repayment deal with Paris Club

Thu May 29, 2014 4:55pm EDT

Related Topics

* Will allow country to clear arrears of $9.7 billion over 5 years

* Deal clears the way for resumption of international financing

* Paris Club dispute is legacy of country's 2001/02 default

* Argentina says may also consider deal with holdout bondholders (Adds Breakingviews link)

By Leigh Thomas and Sarah Marsh

PARIS/BUENOS AIRES, May 29 (Reuters) - Argentina reached an agreement on Thursday with the Paris Club of creditor nations on repaying overdue debts in a landmark deal that should help the country put its record default behind it and open up much-needed sources of international financing.

The Club said the deal, reached in the early hours of the day in Paris, would allow Argentina to clear around $9.7 billion of arrears over the next five years. Deemed positive for Argentina by analysts, it lifted Argentine stocks and bonds.

Faced with an ailing economy and dwindling foreign reserves, Argentina has been on a push since late 2013 to resolve disputes with creditor nations and foreign firms in order access fresh funds and attract investments to its massive shale resources.

The country has been virtually shut out of capital markets since its 2001/02 default on roughly $100 billion.

"Argentina is continuing its path of regularizing and paying off the debt that 40 years of neoliberalism left us," Argentine Economy Minister Axel Kicillof told an Argentine radio station from Paris.

The deal is a key step toward lowering borrowing costs for Argentina that have been too high, in double digit figures, for it to consider issuing new foreign debt since its default.

But Argentina's sovereign bond yield spreads over U.S. Treasuries tightened only 7 basis points to 843 points on the EMBI Global index, reacting cautiously as the main challenge for the country to regain full access to market remains intact.

Argentina is still at loggerheads with "holdout" bondholders who have declined to participate in its debt restructurings.

The U.S. Supreme Court is expected to consider in coming weeks whether to take on the case. If it does not, Argentina has said it may be forced into a technical default.

But the Argentine Cabinet Chief said on Thursday that the country may, contrary to its prior refusal, consider reaching a deal with the holdouts outside the courts, news that further rallied bond prices.


Argentina was eager to secure a deal that does not put too much strain on its balance of payments. Its central bank reserves stand at just $28.5 billion and the economy is expected to fall into recession this year.

Offering Argentina some breathing room, the Paris Club agreement calls for a repayment in installments, with the first one of $650 million due this July, Argentina's government said. The second tranche, of $500 million, should be made in May 2015.

Argentina also wrung a major concession from the Club by avoiding any International Monetary Fund involvement in the deal, which the creditor group usually requires.

President Cristina Fernandez' government, which has publicly lambasted the IMF, would have lost credibility if it had accepted an IMF program or audit.

"It seems a good deal for Argentina, both in terms of the seemingly generous repayment profile and the fact that they seem to have reached an agreement much sooner than I expected," said Stuart Culverhouse, head of research at Exotix, a frontier markets broker in London.

"The hit to reserves appears light in the near term, which will reassure exchange bondholders."

The Paris Club said the deal cleared the way for export credit agencies of its members to resume doing business with Argentina. Foreign investment is key for it to develop its vast Vaca Muerta shale field. (Additional reporting by Alejandro Lifschitz in Buenos Aires and Sujata Rao-Coverley in London; Editing by Kieran Murray, W Simon and Tom Brown)

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Comments (1)
GermanHoldout wrote:
Last but not least, Argentina should resolve now also the Holdout Problem. Then Argentina could immediately return to the capital markets.

Each state in the world refinances its debt on the capital markets without using reserves. A return Argeniniens to the the capital markets would be welcome.

BUT before reentering the world, Argentina must end this NIGHTMARE this since 2002 ongoing HORROR-Default with the Holdouts!

The whole world would be very pleased, if President Kirchner ((by the way a beautiful woman) finally finished this since 2002 ongoing NIGHTMARE-DEFAULT!

If Argentina and the holdouts made NOW A BINDING AGREEMENT with respect to the “time after” (end of the “Rights Upon Future Offers (RUFO) clause in December 2014), seizure risks and a technical Default would be immediately averted. Argentina could immediately return to the capital market and thus Argentina could refinance the payments to the holdouts, without using reserves.

Holdouts want a simple, clear, secure and an ACCEPTABLE solution.

Holdouts DO NOT want such exotic financial constructs, as they were the swap conditions in 2005 and 2010, with an exorbitant Haircut, with many new bonds, with only Discount bonds above $50000, GDP Warrants etc., and with maturities in the eternity. Such “shares like” financial constructs are inacceptable.

A swap from the defaulted old bonds to new bonds is unacceptable also for tax reasons. In Germany, for example, if you accepted a swap, then you would have to pay for the new bonds 30% extra tax…

Following simple conditions might be acceptable for the Holdouts and maybe also for Argentina on the basis of the old bonds.(Without swapping from old to new bonds, also because of tax reason):
Argentina (or investment banks, funds) make a buyback offer of about 130-140% for the holdouts ( for owing capital+ accrued interest between 2002-2015).
(Argentina owes to today about 230%, a cash buyback of 130-140% would so mean for Argentina already a debt relief of about 100%)

May 29, 2014 6:04pm EDT  --  Report as abuse
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