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Dienstag, 30. Juli 2013

A French newspaper highlighted the support from the French government for Argentina in the case against the vulture funds

A French newspaper highlighted the support from the French government for Argentina in the case against the vulture funds
Tuesday, July 30, 2013
The economic newspaper Les Echos, in an extensive articles, highlighted the support offered by France for Argentina in the judicial process being taken to the U.S. Supreme Court.
“The International Monetary Fund (IMF) threw in the towel.  France, for its part, decided to jump in: after doubting for weeks it is giving its support to Argentina against the vulture funds before the U.S. Supreme Court by filing what in legal jargon is called an “Amicus Curiae” (friend of the Court),” argues the article published in the economic newspaper.
On Friday, Economy Minister Pierre Moscovici announced the decision of the French government.
According to the newspaper, the measure was not “unprecedented in any way but (indeed was) very surprising, taking into account that not even the United States wanted to take a stand in a case that pits Buenos Aires against millionaire Paul Singer Elliot (NML)”.
“By giving its support to Argentina before the highest American jurisdiction, France (a creditor of Argentina) is hoping to weigh in on the decision of the judges,” added the article signed by journalist Isabelle Couet.
The Economy ministry of France through its website confirmed on Friday that it put the “Amicus Curiae” in the U.S. Supreme Court’s inbox.
In it, it backs Argentina’s position against the vulture funds and rebuts many arguments of the U.S. judiciary.
“The ‘Amicus Curiae’ without a doubt will provoke criticism, especially among those who consider Argentina a pariah state.  In any case, the French government decided to take any ambiguity away from its positions,” the article in Les Echos emphasized.
The prestigious economic newspaper recalled that last March, the Court of Cassation in France impeded Elliott from attaching funds that three French companies had to pay to Argentina.
“A decision that many experts in international law considered to be audacious,” the economic newspaper said.
For its part, the economic website Boursorama also echoed France’s intervention today, after it was announced on Sunday, in a detailed article.
Boursorama highlights the statements made on Friday by Minister Moscovici, who argued that “the principle itself of ordered and negotiated restructurings of sovereign debt, in particular those carried out in the framework of the Paris Club, could be affected.”
“The decision of the Court could discourage the participation of good faith creditors to resolve debt reduction crises and also has significant implications for many developing countries and weakens their revenues,” the French official added.
Moscovici clarified that the French initiative “is not linked to the specific Argentine case” but “motivated by the commitment of France in the preservation of international financial stability and its role in the heart of the Paris Club.” 
In its article today, the economic site says that “if France took a step it is because it has interests to defend,” alluding to the debt of US$8 billion that Argentina has with the Paris Club, presided over by France.
[NOTE: This Telam wire story was also published by Ambito Financiero.]
El Cronista
Large funds abandon Argentine bonds after IMF setback
Tuesday, July 30, 2013
Investors that bought Argentine bonds hoping the U.S. Supreme Court would take into account the lawsuit that the country has against creditors experienced a double loss in their holdings after the International Monetary Fund (IMF) and the American government gave up on supporting Argentina.  
After the biggest weekly increase in four years pushed restructured bonds prices in dollars from Argentina to a seven-month high on July 23, bonds lost an average of 5.62% with the stances of the IMF and the Justice Department to stay to the side and not file any brief in favor of the country.
Thus, the volatility of the Argentine debt came to quadruple in the last two weeks up to more than six times the average for emerging markets, according to data compiled by Bloomberg.  
While Citigroup said that the last recovery was “exaggerated,” it’s likely that the oscillations in prices are persisting while speculators try to anticipate decisions, like on the sum that Argentina will have to pay the “holdouts” and if the Supreme Court will end up taking the case.
TCW Group, which at the end of May had Argentine bonds with a nominal value of more than US$200 million, sold most of its holdings in recent weeks.  “Due to the current underlying situation, Argentina is not a long-term investment,” said David Robbins to the Bloomberg news agency, as he collaborates in managing some US$10 billion in emerging market debt in TCW.  “It’s more a business opportunity ,” he added.
On June 24, Argentina asked the Supreme Court to analyze its legal conflict with a group of “holdouts” led by the multimillionaire hedge fund director Paul Singer, but the response of the supreme tribunal is still long from being known.
La Nacion
The doubt, once again, is if the credit will arrive
Tuesday, July 30, 2013
by Diego Cabot | LA NACION
The largest public works project proposed by Kirchnerism could open up a new way to finance infrastructure, or on the contrary once again confirm that, despite a “won decade”, the govenrment never managed to achieve the necessary confidence for the world to put money into big projects in the country.
Nobody in the last 10 years invested between US$4.5 and US$5 billion in Argentina.  Never in that time has a similar credit been granted.  Could the government of China give the money for the hydroelectric dam projects Nestor Kirchner and Jorge Cepernic, previously called Cóndor Cliff and Barrancosa?  Will it manage to finance the generators installed in the Santa Cruz river basin despite the electrical sector seeing red on its balance sheets?  Until now, the record that Kirchnerism has racked up in matters of financing is not helping one imagine it.
President Cristina Kirchner has been given the luxury of bidding out the project for the third time and is at the point of judging it for the second.  All the attempts have not done anything more than sweeten campaigns.  The same always happened: at the moment of putting in millions, everything comes to an end.
This time, all the capital for financing the project must be put in by the consortium that is given the project in exchange for an interest rate and, of course, the operation of the dam.  Then, the government will pay it back in installments.  The Assistant Secretary for Coordination in the Planning Ministry, Roberto Baratta, one of the officials that speaks on behalf of Minister Julio de Vido, was charged in recent days with notifying and counseling the bidders.  He informed them that despite nothing being official yet, the consortium made up of Electroingeniería, Hidrocuyo and Gezhouba Group (China), which has Chinese financing, will come in first in the order of merit of the bids.  Then came the advice: he repeated to them with emphasis that the government does not want any challenges that could halt the bidding process.
If the construction firms that are fighting to end up with the project make a case, it will be the time to see if Eastern money is coming at all for Argentine infrastructure.  In recent months, a new direction was called for within trade relations with China: railways.  But the difference with what will happen with this mega-project, which requires long-term financing, is that the wagons that will populate the Sarmiento and Mitre lines were paid in a C.O.D. manner, almost in cash.
Kirchnerism never could finance a project with private money, with international credits or with direct loans from a govenrment.  There were indeed attempts, Casa Rosada events, and announcements.
The first similar case of this was the ill-fated bullet train.  There were private banks, intermediation o the French government and a lot of lobbying by Alstom for the project to be done.  But it never found a volunteer to put dollars into a deal of which it was not known how much it would recoup, who would operate it and what the rules of the game would be.
Something similar happened with previous biddings on the dams.  How to finance a project that will sell electricity when neither the price will be known nor the regulatory conditions?  There is no genuine investment to build the infrastructure that the country needs like it needs air.  Perhaps China is the last candidate that Argentina has left.  But the easterners know the rules.  The smile for the announcement is negotiable; the money is not.

France sallies forth into pari passu case, shows more esprit than Washington surrender monkeys

France sallies forth into pari passu case, shows more esprit than Washington surrender monkeys

Quelle blague with the pari passu saga, sometimes.
You go to all this effort to scare off the IMF from so much as bleating some tame reservations to the Supreme Court about how a ratable payment of holdouts by Argentina might hurt global ‘policy’ on sovereign debt restructuring. Despite ‘policy’ being something many expected the fund to look at.
Then you watch the French swoop in anyway. And they’re much fiercer than the IMF was going to be.
As Isabelle Couet reported for Les Echos on Friday, France did indeed go where the US feared the IMF to tread last week, filing an amicus curiae brief in favour of taking the pari passu case onto the Supreme Court’s docket.
Now, as Anna Gelpern points out, it’s hardly going to discourage the court from asking for the views of the US in a few months’ time. That means the IMF could have another go at filing as an amicus, and last week’s unpleasantness would be forgotten. Whether any of it will convince the court — Argentina’s legal position tends to be seen as pretty hopeless at this point anyway, though it clearly wouldn’t mind buying yet more time — is another question, especially when it comes to policy versus issues of conflicts in federal law.
But there’s also that ferocity.
France chairs the Paris Club, where rich governments meet to arrange “treatment” of their loans to another government in distress and, critically, expect private creditors to swallow similar treatment. (“Although it does not speak here on behalf of the Paris Club…” says the French brief.)
The Paris Club are not namby-pambies when it comes to Argentina. Much like the way it’s treated the holdouts, the country owes Club lenders billions of dollars in past due debt, locking it out of bilateral borrowing (financing for, say, infrastructure projects) until it plays ball.
(A fun sovereign finance fact: the first country to strike a deal in Paris to restructure debts to other governments — creating the Club — was Argentina, in 1956.)
We wonder if the holdouts could accuse France of “signaling support for Argentina’s attempts to repudiate debts that it has ample resources to pay” (as they did to the IMF), assuming letters of complaint wouldn’t go straight into the déchiqueteur. The French brief is deeply sniffy about the holdouts — a certain bird is mentioned, they’re basically implied to smell of elderberries, etc — but it’s here to get its money back too, and to control its credit risk on future loans to governments. And while the French make a lot here of governments lending to vulnerable debtors from Afghanistan to Zambia… they are also sitting on a great deal of eurozone sovereign exposure.
Interesting, then, that ‘policy’ for France goes much further than the IMF, in particular warning that ratable payment to private holdouts may leave less to go round for paying back bilateral lenders. By contrast, the IMF (going by this May report) sounded as if it was going to issue a very general caution about “collective action problems” and about the pari passu case giving holdouts greater ‘leverage’ to demand more of the pie.
The French brief even has warnings on a standoff between the governing laws of bonds and loans:
In fact, the reach of the Court of Appeals’ decision is so wide that it may also impact creditors whose bonds are not governed by New York law. If, for example, a sovereign borrower has bonds governed by New York law and also has bonds governed by another foreign law, then, following the Court of Appeals’ decision, a court could condition payments of bonds governed by the foreign law upon the making of ratable payments on the New York law governed bonds.
On risks of spillovers to bilateral lending:
This decision may also impact official bilateral loans contracted by a sovereign if it has a mix of bond, bank and official bilateral borrowing—as do many sovereigns… The mere existence of a New York law-governed bond among a sovereign’s borrowing structure may expose payments under its loans to the Court of Appeals’ injunctive remedy if the bonds include a common pari passu clause that links the ranking of payments on loans and bonds within the scope of the sovereign’s external indebtedness.
On threats to inter-creditor equity:
Notably, Paris Club agreements include a “comparability of treatment” clause, which aims specifically to ensure balanced treatment of the sovereign’s debt and fair burden-sharing among all external creditors—sovereign lenders, bank lenders and bondholders… Furthermore, as a matter of equality of treatment, this clause is designed to ensure that claims of taxpayers in the lender countries—for example, U.S. or French taxpayers—are not subordinated to those of other, private-sector creditors. Crucially, it facilitates fair burden-sharing among sovereign creditors.
And on why it’ll be the poor what pays:
While private funding for the most vulnerable countries amounted to less than 10% of the total external public and publicly-guaranteed debt stock of these countries as of 2011, bilateral sovereign loans accounted for close to 40%. In addition, sovereign bilateral disbursements represent a steady share of new external financing for these countries, at more than 35% of total disbursements in 2011…
The idea of sovereign lenders fighting each other over pari passu doesn’t sound outlandish. France cites Grenada’s current battle with a holdout official lender whichwants to enjoin “payments to sovereign or official creditors on Grenada’s external debt”. The IMF wasn’t planning to.
Other parts of the French brief are very similar to what the IMF would have come out with: there’s a section taking the Second Circuit to task for its optimism that collective action clauses make it “highly unlikely” a future sovereign default will produce as many holdouts as Argentina’s did.
Only 17 of the 36 foreign-law bonds saw CAC activation in Greece’s restructuring, says France, which left almost 30 per cent of foreign-law debt by value to be paid in full under the ultimate backstop of eurozone taxpayers… including French taxpayers.
Other parts still venture straight where the IMF would never have gone, into law, not policy: France is annoyed that the Second Circuit “erred” by using its powers of equity to “compel payment of a debt” by approving this injunction. Argentina’s own cert petition argues similarly. The French brief doesn’t say anything about actual sovereign immunity from enforcement, the grounds for Argentina’s other big complaint to the Supreme Court. Argentina recently won a big victory over immunity in the French courts.
But still — much further than the IMF would probably have gone.

A loophole in Argentina’s currency controls is giving buyers of securities linked to economic growth a chance to almost double their money within 18 months.

Jefferies Spots 93% Profit Exploiting Loophole: Argentina Credit

A loophole in Argentina’s currency controls is giving buyers of securities linked to economic growth a chance to almost double their money within 18 months.
At a time when Argentina is implementing the harshest foreign-exchange restrictions in a decade, a clause in central bank rules lets foreign investors convert coupon payments on peso-denominated warrants to dollars at the official exchange rate. With that rate forecast to fall to 7 pesos per dollar by the next payment in December 2014, holders who buy $1 of warrants now will be entitled to receive a 13.5-peso payout -- or about $1.93, based on estimates by Jefferies LLC.
Argentina will pay 5.1 billion pesos on the peso warrants and $2.9 billion on the dollar warrants next year, according to a July 25 report by Buenos Aires research company Empiria Consultores. Photographer: Diego Giudice/Bloomberg
The 93 percent implied return based on the increasing dollar value of the coupon payment alone compares with a 5.9 percent decline for Argentina’s dollar-denominated government bonds this year and 5.7 percent drop for local-currencysovereign notes in emerging markets, according to JPMorgan Chase & Co. After official data showed that economy expanded 7 percent and 7.8 percent in April and May, the nation is now on track to grow 4.8 percent this year, surpassing the threshold needed to trigger a warrant payout, according to Jefferies.
The peso warrants are attractive because “most people don’t know about the ability to get the official exchange rate so they trade a bit cheap,” said Ray Zucaro, who helps oversee $350 million of emerging-market debt at SW Asset Management in Newport Beach, California.

‘Huge Upside’

Argentina will pay 5.1 billion pesos on the peso warrants and $2.9 billion on the dollar warrants next year, according to a July 25 report by Buenos Aires research company Empiria Consultores.
Jefferies’ estimate is based on a 20 percent annualized rate of depreciation in the official exchange rate for the peso. Investors would own securities that are eligible for payments until they expire in 2035.
“There could be huge upside,” Siobhan Morden, head of Latin America fixed-income at Jefferies, said in a telephone interview from New York. “You have to assess regulatory risk that you will in fact be compensated at the official foreign-exchange rate, the risk of a maxi devaluation and forecast risk for GDP growth.”
Morden said that while “there’s value” in peso warrants, she prefers the euro-denominated securities because the payment is vulnerable to less regulatory and currency risk.

Euro Warrants

Morden forecasts that by the end of next year, the dollar warrants will return 45 percent and warrants denominated in euros are poised to gain 60 percent.
SW Asset Management estimates a coupon payment of 12 pesos and an exchange rate of 8 pesos per dollar by the end of 2014, resulting in a 50 percent return for local-currency warrants.
Last year, foreign investors were able to exchange their peso coupon payment at the official exchange rate, reaping a return of 51 percent. Barclays Plc recommended the trade at the time, saying the securities had “meaningful upside potential.”
According to the central bank’s latest summary of currency controls, which is dated February and posted on its website, non-residents can exchange payments on “revenue of government bonds and loans issued in local currency” at the official exchange rate and take the funds out of Argentina.

‘Don’t Trust’

After her re-election in 2011, President Cristina Fernandez de Kirchner banned most foreign-currency purchases, restricted imports and forced companies to bring money held abroad back to the country. Her measures reduced outflows of capital, which had almost doubled to $21.5 billion in 2011, to $3.4 billion last year.
Diego Ferro, co-chief investment officer at Greylock, which oversees $500 million in emerging-market debt, including euro-denominated GDP warrants, said the rules governing the peso warrants are susceptible to change as they were issued under Argentine legislation.
“I don’t trust Argentine law,” Ferro said in an e-mailed response to questions. “In fact, I don’t trust any law that’s not New York or London. So even if they’re cheaper, I prefer foreign-legislation warrants.”
The extra yield investors demand to own Argentine bonds instead of U.S. Treasuries rose eight basis poiints, or 0.08 percentage point, to 1,147 basis points at 9:08 a.m. in Buenos Aires, according to JPMorgan’s EMBI Global Diversified index. The spread is the biggest among 57emerging markets.

Most Expensive

Argentina’s five-year credit default swaps, contracts that protect holders of the debt against non-payment, are the most expensive in the world, data compiled by Bloomberg show. The swaps rose 38 basis points to 2,487 basis point at 8 a.m. in New York, according to data compiled by CMA Ltd.
Securities issued under Argentine law may be safer than those governed by New York legislation, according to Zucaro.
The country is appealing a U.S. court order to pay $1.3 billion to owners of bonds on which it defaulted in 2001 at the same time it makes payments on performing securities. Fernandez’s promises not to pay the holdouts any more than it paid bondholders in 2005 and 2010 restructurings have fueled speculation she may opt to default on the New York-law debt.
Payments on the GDP warrants, which were issued as part of the restructurings, are triggered when growth surpasses annual targets set in the securities’ contract. No disbursement is due this December, the month payments are made, after an expansion of 2 percent in 2012 fell short of the threshold.

Warrant Payment

Last December, the government made a $3.5 billion payment, based on 2011 growth of 8.9 percent. Peso warrants have risen 39 percent since the Dec. 14 payment.
Even if the economy stagnates in the second half, growth in the first semester was sufficient for GDP to expand 4.5 percent this year, Empiria Consultores said in a report titled, “A Statistic that Costs $3.6 Billion” -- a reference to the amount the research company calculates the government will disburse in December 2014.
To fall short of the 3.22 percent threshold, the economy would have to contract 1.6 percent in the second half, which would be the slowest expansion for the second six months of any year since 2002, according to Hernan Lacunza, a former central bank general manager who runs Empiria.
Legislative elections in October make such a contraction unlikely as the government will want to present a thriving economy to voters, Lacunza said.
“The peso warrants are attractive,” Lacunza said in a telephone interview. “Everything is pointing to a warrant payment next year.”
To contact the reporter on this story: Camila Russo in Buenos Aires
To contact the editors responsible for this story: Michael Tsang at; David Papadopoulos at