Argentina debt talks collapsed over price, guarantees

Thu Aug 14, 2014 2:08pm EDT

NEW YORK, Aug 14 (IFR) - Argentine debt talks collapsed due to disagreements over the price of its bonds and the absence of a government guarantee to honor payments on them, sources close to the discussions said.

International banks had appeared to be nearing agreement to buy Argentina paper from holdout creditors who have refused to accept a debt restructuring deal with the sovereign.

There were hopes a deal between Citigroup, Deutsche Bank, HSBC and JP Morgan on one side, and litigant investors led by Elliott Management and Aurelius Capital on the other, could come this week.

But the two sides could not agree on price, particularly as the government assurances weren't explicit or strong enough to justify a higher valuation, the sources said.

An initial offer of 80 cents on the dollar for the bonds was virtually halved to around 40 and 50 cents amid uncertainty over whether Argentina would actually pay the bonds - US$1.33bn plus accrued interest - next year.

For its part, Argentina was thought to be unwilling to provide a guarantee of payment to banks for fear of violating the RUFO clause, which expires at the end of the year and requires it to offer equal terms to restructured bondholders as well.

"None of the big banks want to hold illiquid assets forever," said Jorge Piedrahita, CEO at Torino Capital, a broker dealer focused on emerging market debt.

"You want more than a nod and a wink from (Argentine President) Cristina (Fernandez de Kirchner)," he said. "And that was not coming from the government."

One source told IFR: "There's no way an international bank can bridge funding when Argentina is looking riskier and riskier."

Holdout sources denied market rumors that Aurelius and Elliott themselves had been unable to agree on an offering price for the debt.

TOUGH TALK

Heated public rhetoric from government officials also did little to assure participants that the sovereign was supportive of a deal, the sources told IFR.

After weeks of government accusations that the US court-appointed mediator for the debt talks was "incompetent" and "biased", cabinet chief Jorge Capitanich was quoted Thursday morning saying that his country was "in the hands of an international financial power comprised of small, voracious interests that form a real international mafia".

"Part of the problem is the Argentine government's rhetoric," one of the holdout sources said.

"Combined with the government's track record of never being willing to negotiate with bondholders, how can any third party believe that the Kirchner administration will honor these obligations?"

Holdout creditors have said they would be open to a hybrid deal involving payment with bonds. This is how Argentina paid settled claims due to the Paris Club and Spain's Repsol as compensation for the 2012 expropriation of its majority stake in YPF.

However such a deal could only be cut with the government, which has clung to the idea that the RUFO clause, which expires in December, impedes it from offering better terms to the holdout investors. Such a move would trigger the RUFO clause and expose it to billions of dollars worth of claims.

Citigroup, Deutsche Bank, HSBC and JP Morgan declined to comment. (Reporting by Joan Magee; Editing by Paul Kilby and Marc Carnegie)