(Adds comment, details of court hearing)
By Davide Scigliuzzo
NEW YORK, Feb 26 (Reuters) - Argentina has suspended a planned sale of dollar-denominated bonds intended to raise at least $2 billion, two investors with direct knowledge of the deal told Thomson Reuters IFR on Thursday.
The suspension, if lengthy, could hamper Argentina’s financing of bonds worth over $6 billion that mature later in the year as the government fights to shore up low foreign reserves.
The decision to suspend the sale came after U.S. District Judge Thomas Griesa ordered Deutsche Bank and JPMorgan Chase & Co to hand over documents relevant to the Bonar 24 bond sale.
Griesa said late Wednesday, according to a court transcript of an emergency hearing on Wednesday, that the order he signed did not restrain any transaction. “It simply asks for discovery,” Griesa said.
The South American country, a pariah in global debt markets for more than a decade, said on Wednesday it had a “window of opportunity” to raise debt internationally and began marketing the new Bonar 24 bonds.
The proposed reopening of the sale of new Bonar 24 bonds, with a coupon of 8.75 percent, was estimated to be at least $2 billion, according to the hearing transcript that cited a letter to potential investors prepared by the banks.
Lawyers for JPMorgan said in court that the bond sale was merely “contemplated,” despite the contention by lawyers for the hedge funds it was imminent.
“There was never a confirmation of a sale, therefore it can’t be suspended. Argentina yesterday just confirmed that it was open to study all proposals that it may get,” Argentina’s Economy Ministry told Reuters in a statement.
The new debt was to be issued under Argentine law to non-U.S. investors to avoid legal risks in the United States. Argentina is embroiled in a drawn out legal battle with a small group of New York-based hedge funds over unpaid debt held under U.S. law stemming from its 2002 default.
Two sources familiar with the matter said Deutsche Bank and JP Morgan decided to put the bond sale on hold as a precaution while they respond to the court’s request.
“Argentina is not prevented from raising funds,” a source said. “Any restrictions (from the U.S. courts) apply to the coupon payments on its bonds, not to its ability to raise capital.”
The same source said the deal could be back on, depending on the outcome of the legal proceedings.
Argentine bonds have rallied in the past two weeks, partly driven by investor confidence that the Oct. 25 presidential election will usher in a more market-friendly government. President Cristina Fernandez cannot run for a third straight term.
Investors appeared to take the latest developments in stride. The price of the Bonar 2024 rose 0.191 percent to a bid of 104.85 cents.
“Investors believe that with a change of administration there will be greater opportunities to access international funding, and at these interest rates there is money available,” said Roberto Drimer, an economist at the Buenos Aires-based consultancy VaTnet.
According to court documents dated Feb. 25, NML Capital, one of the firms suing Argentina, served subpoenas on the banks seeking information on the issuance of Bonar 24 bonds on Feb. 9.
Argentina tipped back into default in July after Griesa blocked it from servicing its performing debt until it settled with the litigating hedge funds. (Additional reporting by Richard Lough, Hugh Bronstein, Jorge Otaola, and Eliana Raszewski in Buenos Aires; Nate Raymond, Joseph Ax and Daniel Bases in New York; Writing by Richard Lough and Daniel Bases; Editing by Jeffrey Benkoe and Meredith Mazzilli)