BUENOS AIRES Aug 7 Argentine bonds and stocks extended gains on Thursday, with news that international banks may be close to a deal to buy debt from holdout creditors, bolstering investor optimism that Latin America's No.3 economy would soon cure its default.
The creditors are considering an offer from Citigroup, JP Morgan, HSBC and Deutsche Bank of 80 cents on the dollar for their roughly $1.66 billion holdings of Argentine debt, Thomson Reuters IFR revealed on Wednesday.
Argentina defaulted for the second time in 12 years last week after the government said it could not cut a deal with the New York hedge funds demanding face value on bonds they bought on the cheap after the country's economic crash in 2002.
Argentina's Economy Ministry declined to comment but has said previously there was nothing to prevent private parties reaching an agreement.
Dollar-denominated Par bonds traded 0.9 percent higher on the over-the-counter market at a bid price of 53.75, while Discount bonds were up 0.9 percent at 86.50. On Argentina's blue chip Merval index, stocks traded up 1.70 percent at 8,228.13.
Gustavo Ber, an analyst at the Buenos Aires-based financial consultancy Studio Ber, said "renewed hopes of a deal with international banks" were driving Thursday's asset gains.
Which banks would ultimately purchase the debt remained unclear, a source close to the negotiations told IFR.
"It could turn out to be only two banks that go in for the final deal with all the jockeying and various simultaneous talks going on," said the source close to the situation.
JP Morgan, Deutsche Bank and Citigroup declined to comment to IFR, while HSBC was not immediately available for comment.
Argentina fell into default after missing a June 30 interest payment on restructured bonds following a U.S. court ruling that it could not service the performing debt until it had settled its legal battles with the holdouts.
But now that it is in default, the holdouts are seen to have lost leverage. If there is no swift deal to end the saga, other bondholders might demand the advanced full payment of the principal value of their debt, a process known as an "acceleration".
That would potentially leave the funds, led by billionaire Paul Singer's Elliott Management Corp and Aurelius Capital Ltd, with nothing to show for a years-long courtroom fight which left Buenos Aires ordered to pay $1.33 billion plus accrued interest.
The funds paid $48 million for the debt from 2001-2008 and would make a 1,600 percent profit if repaid in full, Argentina has said. The government depicts the holdouts as vultures.
Sources told IFR the banks were unwilling to absorb all the holdouts' debt and were offering 80 cents on the dollar, or roughly $1.32 billion.
Brazil's state-owned Caixa Economica Federal and development bank BNDES were supporting the talks, said a source close to the institutions, as they seek to stem contagion effects across the broader Latin American capital markets.
Argentina has criticized the U.S. judge at the centre of the debt battle and a U.S. court appointed mediator whom it has accused of bias in favour of the holdouts.
The government on Thursday began proceedings against the United States over its sovereign debt crisis at the International Court of Justice, the U.N.'s highest court for disputes between nations, the tribunal said. (Additional reporting by Joan Magee in New York and Davide Scigliuzzo in London; Editing by Grant McCool)