July 28, 2014 / 11:37 AM / 6 years ago

Argentina to hold last-gasp debt talks with mediator Tuesday

BUENOS AIRES/NEW YORK (Reuters) - Argentina will on Tuesday meet the U.S. mediator in its battle with ‘holdout’ debt investors suing the country for last-minute talks to avert a second default this century, but hopes for a deal are fading fast.

Argentina's Finance Secretary Pablo Lopez (C) arrives for debt negotiation talks with court-appointed mediator Daniel Pollack in New York, July 24, 2014. REUTERS/Mike Segar

Mediator Daniel Pollack said on Monday the Argentine government advised him it was sending a delegation of technical, financial and legal representatives to meet him at 11 a.m. EDT on Tuesday in his office in New York.

However, Argentine government sources said Economy Minister Axel Kicillof, the country’s chief dealmaker who has brokered deals with foreign creditors and investors this year, will be in Caracas, attending a meeting of the South American trade bloc Mercosur.

“I again urged direct, face-to-face conversations with the bondholders, but that will not happen tomorrow,” Pollack said, referring to the holdout creditors.

Argentine dollar-denominated bonds closed down as much as 3.3 percent in over-the-counter trading on Monday, as investors worried about Wednesday’s deadline for Latin America’s No. 3 economy to either pay the New York hedge funds in full or cut a deal to stave off a default.

Argentina’s isolation from global capital markets means an eventual default would be highly unlikely to send shockwaves through emerging markets worldwide. But it will hurt a domestic economy already in recession and battling soaring inflation.

Negotiations have made scant progress in the past three weeks. If the deadlock persists, U.S. District Judge Thomas Griesa will prevent Argentina from making a July 30 deadline for a coupon payment on exchanged bonds, triggering a new default.

Argentina argues it cannot cut a deal now that risks breaking a clause barring the country from offering better terms to investors than those in the bond swaps that were accepted by 92.4 percent of its creditors in 2005 and 2010.

A group of those “exchange bondholders” has offered to waive the so-called RUFO clause, the Financial Times reported on Monday, citing unnamed sources.

The FT reported that holders of more than $4 billion of Argentina’s discount and par eurobonds sent a letter to Pollack offering to speed the settlement talks. Pollack did not respond to Reuters’ requests for comment.


Argentina argues that it wants a stay of Griesa’s 2012 ruling ordering it to pay the holdouts $1.33 billion plus interest. The governments says such a stay would help it negotiate a deal that is just for all its creditors.

The funds bought Argentine junk bonds on the cheap after its $100 billion default in 2002 and then rejected the terms of restructuring.

Buenos Aires says the ruling would give the holdouts a profit of 1,680 percent in six years and denigrates them as “vultures” scavenging on the carcass of the 2002 default.

The veteran judge barred Argentina from servicing payments on its exchanged bonds until it settled with the holdouts. Griesa blocked a late June interest payment which now sits in limbo with the trustee agent BNY Mellon. His order prevents the bank from transferring the funds on.

In a rare piece of positive news for holders of exchanged debt, Griesa said on Monday Citigroup Inc (C.N) could make a one-time interest payment on Argentina’s exchange bonds governed by that country’s law.

“The negotiations are extremely complicated and need time. For this reason Argentina wants a stay,” Argentine Cabinet chief Jorge Capitanich told reporters.

Argentina says it is committed to honoring its debt, and in a show of its willingness on Monday paid the Paris Club a first $642 million tranche as part of a deal to clear its debts with the wealthy club of creditor nations.

Argentina's Economy Ministry's Legal and Technical Secretary Federico Thea (2nd L) arrives at the office of a court-appointed mediator for a meeting on Argentina's dispute with holdout investors over its sovereign debt, in New York July 11, 2014. REUTERS/Brendan McDermid

Analysts say a last-minute deal with holdouts cannot be discounted but a default looks increasingly likely as the deadline approaches.

“Argentine authorities seem to have reached the conclusion that to default now and renegotiate later would be the less costly option,” said Carlos Caicedo, principal Latin America analyst at IHS Country Risk.

Capitanich said the government representatives included Finance Secretary Pablo Lopez, Attorney General Angelina Abbona, as well as the Economy Ministry’s Legal and Technical Secretary Federico Thea.

Additional reporting by Walter Bianchi, Jorge Otaola and Richard Lough in Buenos Aires and Nate Raymond in New York; Editing by James Dalgleish and David Gregorio

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