Kicillof will define proposal to vultures before April
• He will select the offer that guarantees more dollars for the reserves
Thursday, February 20, 2014
By Carlos Burgueño
Axel Kicillof has personally assumed, together with Finance Secretary Pablo Lopez, the resolution of whether to accept or reject the new offer that will be presented to the vulture funds suing the country in the United States, in no more than a month. On the table he already has two proposals that, today, have a pointed sting: the Swiss bank UBS and the American bank, Goldman Sachs. He will listen in the coming days to another idea, from HSBC of Britain; and finally, the Kicillof- López, plus the intervention of the ambassador in the United States, Cecilia Nahón, will mull over the proposal with the promise of the greatest level of contributing “cash” for strengthening the Central Bank reserves. According to the calculations of the minister and the secretary, made before beginning the meetings to define the next proposal to the vulture funds and the holdouts, to be successful the negotiation could bring in, as a floor, funds for some US$1 billion or US$2 billion.
The basic strategy, in which both UBS and Goldman Sachs agree up to now, is to buy the debt from the bondholders still suing Argentina and that they gather the bonds in default for between 7 and 8 billion dollars; with a haircut that would be much less than in the swap of 2010 (it was 63%) but with a cash payment. Argentina would then offer a long-term bond (10 years or more), which would begin to pay under the next president to succeed Cristina de Kirchner. For the bondholders that did enter the swap, they would be offered a compensation or there is speculation around when the December date expires this year, after which (theoretically) there wouldn’t be a right to claim a greater compensation than the bondholders that didn’t enter in any of the two debt swaps that Kirchnerism promoted.
The proposals, for now in the embryonic stages, were laid out by each one of the international banks in official meetings in Buenos Aires with Axel Kicillof and Cabinet Chief Jorge Capitanich. The first meeting was with Goldman Sachs on January 29 and they sent the vice president of the firm, Agostina Pechi; the executive director for Latin America, Stephen Scherr; and executive director responsible for the Investment Bank, Richard McNeil. The meeting with UBS was on February 12 with the representative of the Swiss bank for Latin America, Gerard Cremoux.
The official intention is to rapidly choose the offer that is closest to the financial possibilities and necessities of the country, and which rapidly begins a formal round of consultations with the holdouts and vulture funds. These communications will be, obviously, at first entirely between private entities and there will never be formal and open negotiations between official representative of the Argentine government and the vulture funds.
This was one of the conditions for closing a deal that Goldman Sachs and UBS carried with them to Buenos Aires. Politically, for Argentina, to sit down at the same negotiating table with Paul Singer’s vulture fund Elliott, the same which attached the Frigate Libertad in Ghana and is suing (successfully) the country in the U.S. courts, is inadmissible.
About the possibility that his fund would accept an offer of this type, the extra-official rumors that are arriving at the eventual private negotiators are volatile. On the one side, there are statements from fund attorney Ted Olson and Singer himself, where it is said that the only way to negotiate is formally, with the Argentina government making the offer and intervening in the discussions; something that, the parties know, is utopic. However, Elliott’s financial agent, Jay Newman, said yesterday that “if Argentina wants to negotiate, the dispute will be resolved rapidly.” The strategy of the vulture fund (and its allies that still haven’t begun suing the country) is to wait for an immediate favorable ruling after the rejection by the Supreme Court in taking the case, to then negotiate with Argentina from a stronger position.
From Buenos Aires, private sources that participate in the elaboration of the proposal that Kicillof must approve or reject, said that “Singer is a businessman, he knows he won’t collect if he wins the lawsuit and that the only alternative left is to sit down and discuss conditions for collecting what some investment bank offers him.”
The schedule that the government now has in mind is that the final proposal be approved and presented in society before April 21. That day, the attorneys for Argentina from the firm of Cleary Gottlieb Steen & Hamilton (CGSH), Carmine Bocuzzi and Jonathan Blackman; together with the associate for the litigation before the Supreme Court, Paul Clement, will appear before the highest court to speak about the Elliott complaint to attach the accounts of Banco Nacion. This will be, according to the legal representatives for the country, the last chance for making the Argentine case and convincing the judges to take it up.
Before April 21, the government wants the offer to be circulated and the possibility of an agreement to be closer. The decision to move ahead as rapidly as possible on restructuring Argentina’s debt in default and in the litigation in the United States was taken by Cristina de Kirchner under the recommendation of Jorge Capitanich and Axel Kicillof. Both convinced the President to definitively close the liability with the Paris Club and with the lawsuits in the ICSID as a necessity for starting to seriously sound out the alternative of placing foreign debt to strengthen the reserves and solve the external financial front. In principle, Kicillof didn’t want to take charge of this chapter and had accepted leaving it in the hands of his predecessor, Hernán Lorenzino, and the recently created Debt Renegotiation Unit which the ex-minister manages together with former Finance secretary Adrián Cosentino. However, Kicillof changed his mind and took, together with Lopez, control of the foreign debt negotiation and the definitive exit from default. Annoyed by the way the accord was done over the liabilities from the ICSID, he ejected any choosing of an option that put the ex-vulture fund Gramercy, of American Robert Koenigsberger, in charge of the discussion with the holdouts. With Gramercy, at least until now, Deutsche Bank was also separated, under suspicion also in other government offices of having participated in financial actions against the Argentine peso in the days of the currency exchange runs before the devaluation of January 22 and 23.
Richard Samp: “The Argentine appeal has zero chance of success”
The expert ventures to say that the appeal to the American Supreme Court for the holdout case will not reach a good end. While the country’s actions on the external front could favor its image in the United States, he says it will have no effect on the decision of the highest court.
Thursday, February 20, 2014
by MARÍA ELENA CANDIA Buenos Aires
“I would say that there is a 50-50 chance that the Court will ask for the opinion of the Solicitor General,” says Richard Samp, main adviser at the Washington Legal Foundation since 1989, a public interest non-profit law firm located in Washington D.C, which litigates in support of individual rights, the free press system and against excessive government regulation.
Close to the most powerful group of holdouts suing the country in American courts, Samp considers the Argentine appeal as a good attempt for the Supreme Court to take the case, but has no chance of success.
-What is your opinion regarding the appeal that Argentina filed before the U.S. Supreme Court?
-It surprised me that Argentina would center its argument on the highest court having to send the case back to the Court of Appeals in New York for it to decide, which has no chance of being successful. The Supreme Court simply doesn’t work that way, if it wants to decide about a question it will grant a review petition and if it doesn’t want to decide an issue, it will deny the petition. But what it is not going to do is determine that it doesn’t want to rule around a problem and a continuation, take the case from the Second Circuit (which issued a review decision) and deliver it to the Court of Appeals in New York. This procedure was never used by the Supreme Court in his history.
-Why do you think Argentina focused on this argument?
-One part of the Second Circuit decision that bothered some in the financial community (and made the decision controversial) was the interpretation of the court of pari passu. The court found that the clause had no “standard” direction (as some had assumed) but that it requires that Argentina give the same treatment to all the creditors. But the issue that implies how one interprets the meaning of a contract is subject to and controlled by New York state law, not federal law. And Argentina knows that the Supreme Court is not in agreement with listening to cases with the goal of deciding on state law issues. So the only way to put this question forward on interpretation of a contract would be to ask the Supreme Court to grant the petition, stay the petition and then ask the New York court to prove its own interpretation of the pari passu clause. A good attempt perhaps, but it has no chance of success.
-What other arguments did the country’s defense put forth?
-The second question put forth by the petition argues that the measure issued by the district court violated the limits imposed by federal law, the law of sovereign immunity (FSIA). At least there is a small chance that the highest court is in agreement with hearing this issue, since the Supreme Court examines cases that put forth issues related to federal law. But I doubt very much that Argentina will manage to persuade the Court to listen to it, because the Second Circuit decision about this question is not in conflict with the decision of another appeals court. The existence of a conflict of this kind is always a pre-requisite for gaining Court review.
-How do you believe the legal process will continue?
-The NML brief will have to be filed before the Court technically in 30 days, at the end of March. But it’s almost certain that it will ask for a 30 day extension to respond, extending its deadline to the end of April. The motive has to do with the amicus curiae filings in Argentina’s favor before the Court, which will have to be made within 30 days without any chance of getting an extension. This way, NML could take its time reading all the amicus briefs before filing its response to the Court.
-What’s the most likely final scenario?
-The first question that arises is if the Solicitor General of the United States will file an amicus curiae in Argentina’s favor in the period of 30 days, without the Supreme Court asking for it. The Solicitor did it in the Second Circuit, but not when Argentine filed its first petition for certiorari before the highest court in June 2013, so I believe that the chance of the Solicitor filing his brief immediately is 50%. After NML and all the amicus briefs are filed before the Court, the court has to decide in mid-May if it will hear the case, or if it will reject it, or if it will be assumed that the Solicitor still hasn’t intervened, to issue an order asking for its opinion. Once again, I’d say the likelihood that the Court will ask for the Solicitor’s opinion is 50%. It did so in the discovery case before the Court in April, but not in relation to the initial appeal that Argentina made before the Court in 2013. If it asks for the opinion of the Solicitor, his brief will not be filed probably until December 2014 or January 2015.
New CPI would help with the U.S. but not with judges (Sidebar to Richard Samp interview)
Thursday, February 20, 2014
-Do you believe that the Court will take the case?
-At the end of the day, I don’t believe that it will agree to hear the case, because there is no division between the federal courts of appeal in relation to the direction of the disposition of the FSIA in question. In absence of a brief from the Solicitor General, Argentina has zero chances; with his support, it has at least a small chance.
-Some experts said that Argentina could mention the case of Pari Passu in the hearing that the country will have before the Court on the discovery case. Is it a good strategy?
-I didn’t hear these speculations. I don’t believe it’s a good strategy to put forth the pari passu question in the oral arguments in April because the two cases put forth questions that have very little to do with one another. To mention pari passu would do nothing to help Argentina win the discovery case. It would complicate a case that Argentina has a reasonable chance at winning.
-Argentina corrected the inflation index and seems to be giving the impression of seeking to settle other issues on the external front. Do you believe that these actions will make the American government support Argentina in this instance?
-Any action that Argentina takes to settle its situation in international financial circles without a doubt will make the United States government consider it more favorably. And yes, a favorable impression of that kind could be enough to persuade the United States to support Argentina’s position before the Court. I doubt that these efforts will have an effect on the opinions of the eight judges that will analyze the case. I say 9 in place of 9 because Judge Sotomayor is likely to recuse herself from the case. Her absence means that Argentina must attract 5 votes of the 8 remaining to win. A 4-4 tie would uphold the Second Circuit decision.
Imminent agreement with Repsol over the confiscation of YPF
Thursday, February 20, 2014
by Martín Rodríguez Yebra | LA NACION
MADRID.- "I’m settling this.” Axel Kicillof made that promise to Spanish Industry Minister José Manuel Soria, in the most dramatic hours of the last currency exchange run (in January) in Buenos Aires. He asked for “trust” in keeping the dialogue alive with Repsol over the confiscation of YPF.
Several concessions and one month later, the Argentine Economy Minister is one step away from achieving his goal: the contract to compensate the Spanish oil company is in its final hours, almost ready to be signed and the final agreement could be announced before the end of the month, political and economic sources who are aware of the negotiations confirmed to LA NACION yesterday.
The Argentine government plans to compensate for Repsol over the sudden nationalization of 51% of its shares in YPF with US$5 billion in Treasury bonds that expire in 10 years. That was what was contained in the agreement announced in November.
It now remains to be seen what additional guarantee has been added to ensure that the Spanish firm can monetize those securities to a value close to the one agreed to and that the bonds will have in nominal value.
The approach could include the delivery of bonds with a nominal value greater than the one announced, according to Spanish sources. "It is close to decided how that modification would be established without being able to say that the amount of compensation increased,” said one of the negotiators.
The deal between the parties had bogged down with the devaluation crisis in January for fear of the Spanish accepting paper that would have a much lower market value than US$5 billion. According to Spanish financial analysts, today Repsol could pocket no more than US$3 billion for that package of debt if it wre to negotiate them in the short term.
The envoys from Antonio Brufau, chairman of the oil company, asked that the bonds be guaranteed by the reserves of the Central Bank to make them more attractive, something which Kicillof refused. However, he agreed to analyze other financial formulas that "shielded" the value of the compensation.
The bonds offered by Argentina would have an interest rate of between 8.25-8.75% - a high profitability – and would include the possibility of a partial amortization of the principal within a period of two years.
Although the parties are talking in strict confidentiality, financial sources said in Madrid that and an international bank is participating to ensure the liquidity demanded by the Spaniards.
Both the Casa Rosada and the Moncloa; YPF and Repsol, all point out that the agreement is "imminent". It was even suggested days ago by Brufau himself, to whom the government attributed for a long time an intention to boycott any possibility of agreement: "I am optimistic in thinking that for the sake of Argentina as well as for Repsol we will be able to try to quantify an amount of restitution and finish with this story. We are very close."
Rushing the passage
In the past ten weeks, there was an intense back and forth of directors of the company to Buenos Aires. Kicillof, moreover, had an open dialogue by phone with Soria, the man that President Mariano Rajoy entrusted to resolve the crisis.
The Economy Minister intensified the political negotiations when global alarm over the devaluation of the peso had jeopardized the agreement.
He told his Spanish counterparts in advance that he would provide fast signals of predictability (such as acknowledging inflation) and that this would restore calm to the foreign exchange market. "We are not heading toward a default; This is something temporary," was one of the messages that they recall in Madrid. Thus, the man to whom is attributed the ideological authorship of the nationalization of YPF is the one who is moving fastest to pay the Spanish as soon as possible.
The agreement was delayed - government was thinking of of presenting it in January, but negotiations were never interrupted. "After the devaluation, Kicillof was more permeable. The dialogue improved significantly,” said one of the company’s shareholders in Repsol.
For the Casa Rosada, closing the file on YPF now has taken on a capital value: it would be a trophy to show the world that there is some normalization of the economy. In the same way, it is trying to come to agreement with the Paris Club to pay the debt in default and moving ahead with orthodox measures that the International Monetary Fund (IMF) has called for over a long period of time.
The intention is that the final offer be voted on at the monthly meeting of the Board of Directors of Repsol, planned for Tuesday or Wednesday. If it is not terminated down to the fine print by then, they could convene a special session for next week.
Ending with the economic and diplomatic conflict that blew up in 2012 requires, in addition to the willingness to pay, a delicate legal engineering. The company must commit itself to renouncing the international litigation that it filed against Argentina - which asked for US$ 10 billion as compensation - and that complicated the investments needed for the deposit at Vaca Muerta over the past two years.
The text of the offer which could be final flew back to Madrid yesterday. This week the dialogue went from YPF Tower in Puerto Madero to the Palacio de Hacienda. On one side, Kicillof; on the other, a top-level mission from the company made up of the director-general for business, Nemesio Fernández Cuesta; the financial manager, Miguel Martínez; the Deputy Secretary-General, Miguel Klingenberg, and Director of corporate finance, María Victoria Zingoni.