The report, prepared by economist Vladimir Werning, takes for granted that the first appeal from Buenos Aires before the U.S. Supreme Court (on the violation "pari passu") will be rejected

Ambito Financiero

NY anticipates that the vulture lawsuit will drag on

 

Wednesday, September 25, 2013

 

JP Morgan announced yesterday an upgrade in the assessment of Argentine debt, from neutral rating (or "market weight") to positive (or "overweight"), within the portfolio of emerging countries. The revaluation was motivated by the decision of the Federal Reserve to keep intact its program of quantitative easing - increasing global appetite for risky assets--and the prospect of a longer delay in the lawsuit that pits the country against the vulture funds. According to the American entity, these favorable exogenous factors together with the "high yields" of Argentina's sovereign debt brought it to increase its exposure to "overweight" in the short term.

 

The report, prepared by economist Vladimir Werning, takes for granted that the first appeal from Buenos Aires before the U.S. Supreme Court (on the violation "pari passu") will be rejected. But it opens a door to the appeals process on the issue of enforcement mechanisms can be prolonged until 2015, as it is "more likely that the Court will take an interest in the case.” "The deadlines for filing another appeal, over the rejection of an 'en banc' hearing, and the response timing of the Supreme Court may temporarily relieve the concerns of a technical default in the short term,” the document says.

 

Werning also shows himself to be expectant over a "swap" of jurisdiction of the Argentine bonds, but sees it as unlikely that U.S. financial intermediaries will participate in it since it would be "openly defying the New York court.”

 

With regard to the macro-economy, JP Morgan describes it as "illiquid, but not insolvent", referring to the deterioration of international reserves ("they will fall by as much as US$20 billion in 2015") that represents "the greatest credit risk for the country.”  Nor does he expect an election defeat in October to cause a significant shift in the government's economic policy. It provides for an acceleration in the devaluation of the peso, higher interest rates and tighter control of capital to alleviate the draining of the reserves.

 

The increase in the rating is also applied to provincial debt, "the best value proposition for investors who want to increase their exposure in the country", according to another report from the entity by Daniel Sensel and Diego Pereyra. First, the provinces are offering hedging instruments to a possible adverse judgment in United States, and they have demonstrated on several occasions that they are willing to pay. In addition, in the last three months provincial debt has shown itself below the sovereign yields almost in its entirety, and is the market's safest bet. The favorite bonds for the bank are those from the province of Buenos Aires, above those of the city. "Despite having worse fundamentals than the city, they have too wide a spread, considering that the risk is similar,” said the report. The better relations with the National Executive was also taken into account because it will surely relieve any fiscal imbalance that arises for Governor Daniel Scioli. JP Morgan recommended 2018 bonds, which are less liquid than those for 2015 and 2021, but with a lower price in dollars and more attractive yields.

 

 

Infobae

Days before the Court decides on the holdouts, JP Morgan recommends buying Argentine bonds

The entity that measure “country risk” came out to suggest that Argentina’s debt bonds are a good deal despite that starting on the 30^th of this month, the highest court in the U.S. will decide if it takes the case against the creditors.  Optimism over October elections.  

 

Wednesday, September 25, 2013

 

by Leandro Gabin

 

Starting from this September 30^th, the fate of the country before the U.S. courts will begin to be clarified. It happens that the Supreme Court will meet that day to assess whether it will take up for review a ruling against the country for having violated the "equal treatment" or "pari passu" clause with the so-called vulture funds. With this agenda coming up soon, one of the most famous investment banks on Wall Street, JPMorgan, came to upgrade its recommendation on Argentine bonds.

 

The entity, which produces the well-known index on "country risk" (the indicator that gained fame in Argentina during the crisis of 2001/02) explained its optimism on the basis that whatever happens from the end of this month will not be definitively against the country; and that the October elections will be positive for investors (because the decline of the government in the face of the 2015 will begin, with a potential policy change).

 

What JPMorgan did was to raise the weight of Argentine bonds in its index (EMBIG, which measures country-risk), automatically causing the rest of the investors who follow that indicator to go out to buy more Argentine bonds to balance out their portfolios.

 

With regard to what can happen from the end of the bond, the bank is not optimistic that the Court will take the case. But the key issue is that the government can still appeal a different ruling - which obliges it to pay 100% to the vultures – before the court regardless of whether on this occasion (pari passu) it decides to review or not.

 

The October elections are setting the stage to anticipate a change in the political cycle.

 

This, says the entity, would mean the case would arrive in 2014 or 2015, even if the Court decides to take the Argentine appeal for review. Ergo, there is no danger of not being able to pay on the bonds. It is worth recalling that US$70 million comes due on September 30 on the Par bond under foreign law. The Global 2017 pays about US$47 million on December 2^nd, and on December 31^st there is payment on the Discount for another 157 million dollars.

 

"The litigation can last longer. We expect that the Supreme Court will reject Argentina’s petition (which deals with the violation of pari passu) at the beginning of October.  However, we are prepared to assume that Argentina may submit a second petition for review,” they argue.

 

"The debt is attractive because the litigation will drag on and because of the legislative elections, the positioning of investors and macro perspectives that are interesting." A rejection of the first appeal by Argentina (in pari passu) by the Supreme Court is a likely risk. But if a second appeal goes forward, as expected, the litigation horizon can be extended significantly," says JPMorgan.

 

Other positions from the entity on Argentina were the following:

 

-On the macro front, the low level of the country's debt means that the lack of liquidity - as opposed to insolvency - stands out as the main risk for Argentina.  The decrease in Argentina’s international reserves is expected to continue (albeit at a slower pace than at present) up to the presidential transition in December 2015, which will redefine the concept of economic policy.

 

-At the political level, the October elections are setting the stage to anticipate a change in the political cycle: the candidacy of Sergio Massa is gaining support. In the province of Buenos Aires, the advantage that Massa achieved over Insaurralde can more than double the 5.4% margin obtained in the August primary. It places  Massa above a threshold of 40%. But the 2015 presidential elections are appearing on the radar of investors. There are expectations of a future change in economic policies to address the current inconsistencies and place Argentina on a less vulnerable growth path.