* Threat of another sovereign default pushed into next year
* Decision goes against Argentina, but implementation stayed
By Jorge Otaola and Walter Bianchi
BUENOS AIRES, Aug 23 Argentine markets initially
rose on Friday after a U.S. appeals court put a hold on
injunctions against the government in its legal battle with
"holdout" bond investors, but stock and bond price gains were
soon erased as concerns over the case persist.
The South American grains-exporting country lost its appeal
of a judge's order requiring it to pay $1.33 billion to
bondholders who refused to take part in two debt restructurings.
But the 2nd U.S. Circuit Court of Appeals in New York
delayed implementing the decision pending a ruling by the U.S.
Supreme Court, sparking a brief market rally in Buenos Aires.
"After the appeals court decision was analyzed, the
realization set in that Argentina has only bought itself some
time," a local stock broker told Reuters, asking not to be
named. "So sellers started showing up to take profits."
The U.S. high court is likely to consider whether to hear
the case in the fall. If the justices agree to hear the case, a
ruling would be issued by the end of June.
"All this does is extend the fight to next year," said
Rodolfo Rossi, an economist and former central bank president.
The MerVal blue-chip stock index ended the day 0.7
percent lower at 3,916.8 points after rising 1.53 percent
earlier in the session.
The case still threatens to push Argentina toward a debt
default if the country is finally ordered to pay holdouts the
100 cents on the dollar that they are demanding.
President Cristina Fernandez vows never to pay on those
terms. She characterizes the holdouts as "vultures" out to
profit on her country's catastrophic 2002 bond default.
The holdouts bought their Argentine bonds at steep
discounts, refused to restructure the obligations and are
demanding repayment at face value.
The international bond market seesawed on news of the
appeals court decision, with Argentina's country risk premium
initially tightening by 21 basis points and then widening by 43
basis points to 1,066 basis points over comparable U.S.
Treasuries, according to JP Morgan's Emerging Markets Bond Index
The index as a whole was at a much tighter spread of 357
basis points over safe-haven U.S. Treasury paper, showing the
market sees Argentina three times as likely as other emerging
market countries to default.
If final judgment goes against Argentina and the government
nevertheless refuses to pay the holdouts what they want, the
courts could block it from paying holders who accepted big
writedowns as part of debt restructurings in 2005 and 2010.
Missing interest payments to the holders of restructured
bonds would put the country in technical default.
"The appeals court decision means the Argentine government
can continue paying bondholders who participated in the
restructurings at least until there is a final decision," said
Ignacio Labaqui, who analyzes the country for emerging markets
consultancy Medley Global Advisors.
The ruling nonetheless marked a potential victory over the
long term for holdouts led by NML Capital Ltd, a unit of
billionaire hedge fund manager Paul Singer's Elliott Management
Corp, and Aurelius Capital Management.
U.S. Circuit Judge Barrington Parker, writing for the
three-judge panel, said the court believed "it is equitable for
one creditor to receive what it bargained for, and is therefore
entitled to, even if other creditors, when receiving what they
bargained for, do not receive the same thing."