November 4, 2014 / 12:50 AM / 5 years ago

UPDATE 1-Argentina sees "better possibility" of holdout debt deal in 2015

(Adds ministry statement)

By Hugh Bronstein

BUENOS AIRES, Nov 3 (Reuters) - Chances of a deal to end Argentina’s feud with holdout bond investors will improve in January when current restructuring rules expire, the economy minister said in comments published on Monday, raising some hopes for the country’s stagnant economy.

The government is in a legal tussle with holders of defaulted debt who spurned two debt swaps and sued for full repayment. The dispute, along with heavy trade controls and high inflation, has hammered business confidence in Latin America’s No. 3 economy as it staggers toward recession.

When it swapped 93 percent of its global bonds for new paper offering about 30 cents on the dollar in 2005 and 2010, Argentina included a clause saying no one would be offered a better restructuring deal. Argentina will be free of that clause in January.

“At the end of this year, when the instruments that the vulture funds have used for extortion disappear, there will be a better possibility of dialogue with creditors who opted to stay out of the restructurings,” Economy Minister Axel Kicillof said in an interview with Mexico’s left-leaning La Jornada newspaper.


Kicillof, one of President Cristina Fernandez’s closest advisers, often calls the holdouts “vultures” and accuses them of trying to damage Argentina’s economy in their pursuit of astronomical profits.

Late on Monday, the Argentine economy ministry published a statement clarifying “there has been no modification in the government’s stance with regards to the situation with the holdouts”. Its offer would still consist of a new debt swap with the same terms as the 2005 and 2010 ones, it said. The holdouts have consistently rejected such a deal.

Also on Monday, the U.S. court-appointed mediator in the debt dispute between Argentina and holdout creditors was given broad authority to grant other investors a seat at the negotiating table in an effort to agree on a comprehensive settlement.

The debt saga started in 2002 when the country defaulted on about $100 billion in bonds, part of a financial crisis that threw millions of middle class Argentines into poverty.

The holdout hedge funds won U.S. court rulings saying Argentina must pay them at the same time it makes payments to the holders of its restructured bonds.

Argentina refused, so the U.S. federal judge hearing the case blocked its payments to restructured bondholders. This led to a default on one bond series in July and another last month.

The United States has jurisdiction because many of Argentina’s original bond contracts were drawn up under U.S. law.

The holdout creditors, led by NML Capital Ltd. and Aurelius Capital Management, are suing for 100 percent of face value plus interest even though they had purchased most of their bonds for pennies on the dollar after the 2002 default.

Analysts from investment bank Credit Suisse recently met with government and opposition figures. “We found generalized optimism that the government is likely to negotiate with holdout creditors in early 2015,” the bank said in a note to clients.

A deal would help Argentina regain access to much-needed global bond financing, the lack of which has helped pound central bank reserves 17 percent lower over the last 12 month to a scant $28 billion while inflation zooms at an estimated 40 percent.

Farmers in the grain powerhouse nation have taken to hoarding soybean and corn as a hedge against the wobbly peso currency.

The International Monetary Fund said last month it expects Argentina’s economy to shrink in 2014 and 2015 “amid increasing economic imbalances” and uncertainty related to the government’s dispute with the holdouts. (Additional reporting by Sarah Marsh, Walter Bianchi and Nicolas Misculin; Editing by Andrew Hay and Ken Wills)

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