Government and friendly funds speed up the swap “with bonus” to have it ready by year’s end
Economy Ministry hopes to have the third track of the renegotiation ready in the coming weeks. The “friendly” funds with official backing fine tune their proposal to pay a bonus to the holdouts
Tuesday, November 12, 2013
By Esteban Rafele
The Economy Ministry is fine tuning the third edition of the debt swap to be able to present it in the coming weeks. In parallel, and with the backing of the government, the investment fund Gramercy is seeking to seduce NML Capital, the vulture fund of Paul Singer, with an agreement among private creditors for the holdouts to accept the restructuring and collect a bonus.
According to sources that are carrying the negotiations forward, Gramercy asked the government for until the end of the year to make the efforts. The timeline is similar for the launching of the new swap, a necessary condition for the attempts among the private parties to proliferate.
The processes are in parallel. According to an official source, the reopening of the debt swap is moving at a steady pace and will be ready in the coming weeks. The government attributed certain delays to the decision to hold the operation without underwriting banks. And, while the forms are being prepared for filing before regulators, like the Securities and Exchange Commission (SEC) of the United States (the so-called 18-K document), it argues that it could even move ahead with the exchange without complying with all those processes.
The Form 18-K delayed the reopening of the exchange in 2010 over doubts that the SEC had about the local economy and the statistics at INDEC. Now, private sector experts affirm, the government will have to “explain” the currency clamp and the restriction on imports, something that will delay the endorsement of the regulator. Economy says it could save that issue.
Meanwhile, the “Gramercy solution” moves forward. The Economy Ministry, led by Hernán Lorenzino, says it is aware of the proposal from one of the main holders of renegotiated Argentine debt to avoid default. But it clarifies that it is not promoting it nor is a part of it. However, other official and private sources talk of frequent contacts between a representative of Gramercy and Lorenzino himself, backed by President Cristina Fernández.
According to one of the participants from the negotiation, Gramercy “offered” Lorenzino an integral plan for normalizing the country’s financial situation. Added to the holdouts proposal, the investment fund joined efforts to settle contrary judgments in the ICSID for US$500 million. Gramercy bought two of the five lawsuits (Continental Casualty Company and Blue Ridge) and advised the head of the other (Vivendi, with Aguas del Aconquija). It also recommended speeding up the efforts with the Paris Club countries.
Gramercy is seeking to have private creditors give up part of their interest that they will collect in the coming five years (they speak of between 10 and 20%) to a trust fund, from which the “bonus” will be paid out to the holdouts who decide to enter the third swap. The private parties will sign a “consent order” to make the payments, which will accompany the disbursements from the government.
Gramercy argues that they can convince all the creditors, as they will go on to double (“at a minimum” the negotiators say enthusiastically) the value of the bonds, which would gain value with the definitive exit from the default. The holdouts would collect the swap plus the bonus. To convince Singer, Gramercy warns him he will never collect on a sentence from the Supreme Court. And the government will gain a better financial footing for an eventual return to the financial market in 2014, an option that Lorenzino and other officials are holding, as they are concerned by the gap in the Central Bank’s reserves.
NML Capital, of Singer, said last week it will not negotiate if the government doesn’t participate in these discussions. But the contacts between Singer, Gramercy and the attorneys for the parties are frequent.
The public debt has now reached US$196 billion
It grew US$13.4 billion in the last 12 months; but the participation of private creditors fell
Tuesday, November 12, 2013
At a time when Argentina is suffering the worst drop in its main assets in dollars since the currency clamp was installed, the government’s debt rose by some US$13.402 billion in the last twelve months and it nearing 45% of GDP. The “saving grace”, highlighted yesterday by the Economy Ministry itself, is that among creditors of the state, today the participation of public entities is rising in the detriment of private creditors and international credit organizations.
According to a statement from the ministry yesterday, the government’s net debt reached US$196.143 billion at the end of June. This represented an increase of US$13.402 billion over the US$182.741 billion registered in June of last year. In this manner, the debt went from representing 41.5% of GDP to 43.6%.
All this at a time in which the Central Bank reserves, the asset with which the government decided to pay the part of the debt in dollars, is plunging at a rate of US$500 million per week (more than US$10 billion over the course of the year) and it is losing participation in GDP. A report from Fundación Mediterránea warned in recent days that the reserves fell 17.7% to 6.7% of GDP since 2007. And that “if this is repeated in 2014 and 2015, in the sense that the reserves fall by a similar amount to the debt maturities in foreign currency, the GDP-reserves ratio will be at around 3.6% in 2015.”
However, the debt the national state holds with agents of the private sector went from representing 31.3% of the total in 2012 to 28.2% in June of this year. For the counterpart of the debt that the national state holds with agencies of the public sector, like the Central Bank, ANSeS, Banco Nacion and others, it went up from 54% in 2012 to 59% this year. Meanwhile, the debt also with multilateral and binational agencies of credit went down from 13.8% to 12.7% from one year to the next.
If one subtracts the debt in the power of public sector agencies, the net public debt – or that which is in the hands of private parties and international organizations – comes to US$80.374 billion, against US$82.501 from June of last year. “Argentina has decided not to take external financing, but this decision is not free of charge. In replacing external financing, we are currently financing the exit of dollars through the loss of reserves, or in another way: instead of increasing one balance (loans in dollars) we are reducing an asset (reserves): at the patrimonial level, it’s the same,” said the director of the Finance department at the University di Tella, Germán Fermo.
The average lifetime of the net debt in normal payment situation is 10.7 years, while that which is expressed in foreign currency is 11.6 years. The thirteen percent of the net debt in normal situation of payment which began to expire in July of last year, and which will extend through December 2014, will consist mainly of Treasury letters in the hands of private entities. Another 36% comes due between 2015 and 2010, and the remaining 51% starting in 2021.
Overall, the net debt in pesos is equal to US$13.601 billion, while the remaining US$66.773 billion is in foreign currency – dollars and euros. The foreign debt with private creditors in foreign currency stands at US$41.767 billion, or 9.3% of GDP.
"During the first quarter of 2013, the national public debt – net of balances from the national public sector – went down US$2.198 billion with respect to 2012,” the Economy Ministry report concluded.
Estimates that changes at INDEC will not alter the GDP coupon payment in 2014
They do not predict variations in the calculation of growth, from which the bond is paid
Tuesday, November 12, 2013
The change in the measuring of GDP which is process will not challenge the payment in 2014 of the coupon attached to economic growth.
So said official sources to LA NACION, clarifying that “nothing indicates that the projection of economic growth from 2013 (which is used as a basis for paying the coupon) will vary too much” with respect to the figures currently put out by the INDEC, which is being questioned.
Also, they point out that they are awaiting the potential progress in conversations among bondholders that entered the swaps, led by the investment fund Gramercy, and the holdouts holding firm judgments against Argentina, to avoid another default. “So long as the solution holds that Argentina does not put more money into the swap, it’s positive,” said the source, which didn’t give details about the date of the reopening of this operation.
"It’s being worked on; in the reopening of 2010, there was a delay of nine months and this time we don’t have the assistance of the banks,” the source explained.
For this reason, in principle there would be a greater inclination for the idea of Gramercy – which is offering a sharing of losses among the private sector – than the one from the Garrido firm, which, according to Economy, would force the government to offer something more than the swap.
Despite the skepticism of various investment banks on Wall Street – who in recent weeks indicated that the government will place the GDP growth figure of this year below the 3.2% required for triggering the payment of the coupon in December of next year – the source said that “the projections don’t show a sizable drop” from the 5.8% reported in the first quarter of the year that, for the private sector, rounded out at 3%.
Minister Lorenzino said various times that “the coupon payment is good news” because it reflects that the country is growing in a sustained manner, while analysts argue that the government has inflated the growth calculations substantially since 2009
In any case, the source warned that “the bondholders have no rights acquired with respect to the measuring of GDP or inflation: whether they collect or not is based on the result reported by INDEC.”
According to a report issued yesterday by the Economy Ministry, the gross public debt, including obligations from the Treasury with the national public sector, like the BCRA, ANSeS and Banco Nacion, came to US$196.143 billion in June of this year, 43.6% of GDP, which means a reduction with respect to December 2012, of US$1.321 billion, but a 7.3% increase with respect to June of last year.
The government chose to emphasize that “the nation’s net debt with private sector creditors, multilateral entities and foreign government agencies was US$80.375 billion, which is equal to 17.9% of GDP.” In particular, the net debt denominated in pesos is equal to US$13.601 billion, of which US$9.26 billion is adjusted to inflation (or 2% of GDP).
The report detailed that the debt maturities in 2014 will total US$9.5 billion between principal and interest (plus another US$3 billion for the GDP coupon) while for 2015 another US$13 billion will be added.
According to official data, in the first quarter of the year, the national public debt – net of balances from the national public sector itself – fell US$2.198 billion with respect to December 31 of last year. They also pointed out that it went down in relation to GDP, because last June it was equal to “12.3% of GDP, meaning a 0.7% reduction in the GDP ratio compared to December 2012, while in the case of the debt with the private sector in foreign currency it went down to a minimum of 9.3% of GDP.”
These calculations include some US$6.5 billion owed in principal with the countries making up the Paris Club, to which another US$3 billion in interest must be added. In turn, the US$10 billion is not accounted for which the government would have to pay the holdouts if it is done under the same terms as with the bondholders that entered the exchanges of 2005 and 2010.