Vulture fund proposed a haircut on interest. Argentina rejected it.

Ambito Financiero

Vulture fund proposed a haircut on interest.  Argentina rejected it.

 

Tuesday, September 03, 2013

 

By Carlos Burgueno

 

The vulture fund NML Elliot offered to the United States Supreme Court, last Friday, to negotiate a reduction of interests that Argentina is demanding in the trial against the country over the debt still in default since 2001. However, it was not taken as a change from a radicalized position against the country to a conciliatory attitude to reach an agreement, but as presenting a more flexible attitude to this court similar to how Argentina is considering the reopening the debt swap indefinitely and for the third time, with the same conditions as the call to restructure unpaid debt in 2010. It is, ultimately, rather than an attitude of good faith on the part of creditors who are suing the country, a gesture toward the Court to show a friendly and constructive position in the midst of a lawsuit that has gone on more than 10 years without a final resolution; and that the Court must decide whether to accept it or not.

 

The vulture funds’ strategy is to demonstrate that there is a dialogue, with which it would not be necessary for a decision from the Court but an environment prepared by the Court of Appeals of New York would be sufficient to reach a definitive agreement. Then, and since the appellate court upheld that 100% of the position of the plaintiffs against the country, a final decision of the appellate court by order of the Supreme Court would determine that the bondholders have the right to claim the total debt plus interest, so any haircut in its claims must be taken as a positive attitude that Argentina should consider.

 

The specific offer that Singer’s fund made to the Court was to maintain the demand for 100% payment of the principal of the unpaid bonds, and discuss a reduction of the demand of unpaid yield. This means that Argentina should pay the fund managed by Paul Singer the total of the bonds, some US$900 million, of the US$1.33 billion that the fund and other vultures and some individuals are demanding from it in the courts of the United States and Argentina. If the claim is translated to the whole of the debt that Argentina still has in default, where almost 2/3 is held by vulture funds or bondholders with radical positions, the 11 billion dollars in default would fall to approximately US$8 billion overall; depending on the total of the cut in the claim of interest that the vulture funds would be willing to accept.

 

For Argentina it is also an unacceptable position, since the claim would be far superior to the 2010 debt restructuring offer, where the haircut came to 65% of the claim. According to the position that Economy Minister Hernán Lorenzino made clear to lawyers Carmine Bocuzzi and Jonathan Blackman (the professionals from the firm Cleary, Steen, Gottlieb, & Hamilton, representing the country in the lawsuit), it is impossible to accept less than the 2010 offer, since otherwise the bondholders who joined the call from that year and the one from 2005 will demand the same money that would be paid to the vulture funds who are still suing, which would elevate the overall claim about US$23 billion, not counting the interest owed. Therefore, the possibility to negotiate, as Lorenzino made it clear, is the haircut of 2010 with the same bonds that were offered in that call.  Since, by accepting the proposal, there would be no danger of a new technical default, the bonds could be issued under the jurisdiction of Wall Street. In other words, the Singer proposal was rejected flat, and taken from Buenos Aires as not serious. The vulture fund made the presentation to the Argentine lawyers last Friday, then asked for the suspension of the audience than for that day had asked for themselves from Thomas Griesa, so the judge would evaluate if the change of legislation for the bonds to be issued in the new proposed swap violated the appeals court ruling.

 

 

Clarin

With complaints against the vulture funds, Cristina travels to Russia

 

Tuesday, September 03, 2013

 

 

Cristina Kirchner will travel today to St. Petersburg to participate in one of the summits of the G20 with the most conflicts in the background.

 

Apart from the Syrian crisis, which is not on the official agenda, topics will be discussed in this imperial city which are crucial for Argentina as the need to respect the immunity of state debts and thus seek to limit the vulture funds; the regulation of tax havens in the fight against corruption, and growth with employment as a way to leave economic problems behind.

 

Cristina is seeking to meet with Obama here or at the end of the month during the UN Assembly, to seek his support on the judicial issue of the debt.

 

The President will travel to Russia accompanied by the Ministers of Labor, Economy and Foreign Affairs - Carlos Tomada, Hernán Lorenzino and Héctor Timerman - to participate in Thursday and Friday's meeting in the Grand Konstantinovsky Palace.

 

At the meeting – which will convene the nineteen leaders of the industrialized and emerging economies plus the European Union -- the central issue to be discussed will be the growth with employment, a proposal from the President of the host country, Vladimir Putin, which Argentina also supports.

 

The ministers from the countries belonging to the group have been working on the final document for months; the group started in order to seek a solution to the international crisis that erupted in September 2008 with the collapse of the giant of Wall Street Lehman Brothers. And some of the lines of the document - which will be signed by the heads of State and government on Friday afternoon at the majestic halls of the Palace - were already raised in previous meetings.

 

For that - and before the scandalous allegations over "route of the K-money" erupted, splashing the government with a corruption scandal with “stopovers" in tax havens like the Seychelles Islands - the official position has remained being focused on the need to control the actions of these states that lack of regulations and which accept the diversion of funds with dubious origins without too many questions.

 

It was even the President who, at the first open meeting of the G20 last year in Los Cabos, Mexico, raised the issue in those terms. When she showed "concern" that, as she explained, tax havens still been operating since the start of the G20," and she recalled that "in 2012, the exit of money had increased tenfold from 5 to 50 billion  dollars per year.”

 

The issue of the debt and the need for regulation was another proposal supported by Argentina at the preparatory meeting for this Summit and which involved Lorenzino and Tomada. All the while, though, the adverse decision from the judiciary of New York for the Argentine state, and in favor of the vulture funds, was not yet known.

 

As part of the usual last minute negotiations prior to every summit, the government is seeking to get several bilateral meetings scheduled. Among them is one with Putin, with whom in addition to discussing issues in common, she will address the problem with the vulture funds. Also with Russia, the agreement between the state-owned giant gas, Gazprom, and YPF, will be advanced, according to media.

 

With its opposition to the military intervention in Syria proposed by the U.S., it was already said that there will be no bilateral meeting between President Barack Obama and his Russian counterpart, Putin. Cristina also has her list of "those to avoid". Among them are the British Prime Minister, David Cameron, whom in the last encounter at the G20  she ended up giving an envelope with the UN resolutions about the Malvinas, and Britain ignored them. Pending with the president of the Spanish government, Mariano Rajoy, there is the conflict over the nationalization of YPF in the hands of Repsol.  And added to this list now are the leaders of Canada and Australia, with whom the recent comparison with their economies in defense of Argentina’s situation did not go down so well.

 

 

 

El Cronista

The inheritance from Cristina

 

Tuesday, September 03, 2013

 

By Tomás Bulat, Economist

 

It’s very common that in American movies a family must organize the distribution of the last will and testament of the patriarch. But the typical scene shows all the expectant family members surrounding the lawyer, who must open the envelope which will tell how it touches each one and, ultimately, it ends up there will be more debts than assets.  As such, there is disappointment. The worst thing is that there are always those who were already tallying up how to spend it.

 

The local inheritance

 

Like all inheritance, there are assets and liabilities. Like any person, one always shows what he has and hides what he owes. If I’d bought a new car I would show it to my friends, but I don’t tell them that I have a debt with the Bank of $80,000 for 5 years at 40%.

 

A government does the same, showing what it has and hiding or belittling what it owes.

 

The government has "definitively" been diminishing foreign debt.  External debt is considered all that debt which a ‘non-resident’ person or company has in the country. It’s true, and it’s an asset of the inheritance, that the whole of obligations from abroad of that debt is not relevant in terms of GDP.  

 

Now this would be completely true if it is understood as external debt that which is formalized in restructured bonds after 2005. Not only because the government has been a "serial payer," which is true since the restructuring, but because for some years now nobody has been willing to lend money to Argentina, unless it is at prohibitive interest rates.

 

But, as in life, what is shown is not the whole picture, and the foreign debt is not all that is exchanged bonds, because there is too much debt is claimed and not recognized.

 

The hidden foreign debt

 

Argentina on the external front has debt on at least four fronts:

 

-Paris Club: At some point it has to go back to sitting down to negotiate a settlement with the countries of Europe, so "among other things" it can resume the credit that allows imports of machinery under better economic conditions.  That debt is already at an amount close to 10 billion.

 

-The holdouts: Led by the vulture funds and who, in total, are demanding about US$20 billion in principal and interest. With a ruling against Argentina from the Court, it is clear that this debt will have to be incorporated or we will be declaring a default.

 

-ICSID: This represents the lawsuits from companies initiated against Argentina over its reneging on contracts after the collapse of convertibility. This tribunal has already produced some decisions which must be faced up to at some point. Not the total claimed, close to 2 billion dollars, but it has to be resolved.

 

-YPF: Finally, in practical terms, the company up to now was confiscated and not expropriated because Repsol was not paid. If one wants to revive the company in the medium term, that issue must be resolved.  Some US$10 billion is being demanded.

 

Therefore "at a minimum" there is some 42 billion dollars pending resolution that until now is not being computed, and that the government will try to kick forward.

 

The internal debt

 

However, what is most troubling is the internal debt. When it is paid to a creditor from abroad, what is important is to see if the government is taking debt from elsewhere or if it is paid with its own genuine resources.

 

The truth is that in general terms, the government has taken debt from other agencies of the state or private institutions that are in the country. Let's analyze each one:

 

-BCRA: When the IMF was paid, the one who lent the money was the Central Bank. When bonds are being paid which come due in recent months to comply with the serial payment of the debt, the cash will again be taken from reserves. This is how the Treasury owes the Central Bank almost US$70 billion.

 

The counterpart to the BCRA increasingly having fewer dollars is simply more clamping. Because if the Central Bank did not have to use reserves to pay off that debt,  it would have enough dollars to deal with requests from the real economy.

 

-ANSES: Given that has available funds, those of its own and those inherited from the AFJP, a large part is dedicated to buying letters in pesos which it lends to the Treasury at an interest rate well below inflation. That means the debt that ANSES is accumulating today with the Treasury, almost 140 billion pesos, will be paid by future retirees when the accumulated funds do not cover the total payment of retirement benefits and pensions.

 

Here, I am not including debt that ANSES is assuming from court judgments obtained by retirees over the lack of updating, which is growing every year.

 

- PAMI: With a smaller amount, but because these years it has had an operating surplus, part of the financial fund that is maintained is in government bonds. This debt at some point will be again claimed and, not honored, PAMI’s lending could be compromised.

 

- Banco Nación: Banco’s bond holdings have as compensation the pesos that remain to give out loans, not to consumption or to hort term investment, but mainly to long-term investment. Today, Banco Nacion has so many government bonds that its lending capacity is low. It can’t even give out mortgage loans on a reasonable scale.

 

-Provinces: The other debt is the one the provinces are claiming. While those which have initiated legal proceedings have been Cordoba and Santa Fe, one cannot rule out that in the future others will do so. If the Supreme Court rules in favor of a province, that is a new debt which must be covered.

 

-Banks: All the banks have bonds and letters from the government that they have been buying, and in measure of the desire to increase the lending capacity of the system, they will go on paying them off.

 

-Insurance companies: Not many people know that insurers save from the premiums collected for when they need to pay on incidents. An big part of these funds are in government bonds, mainly after the enactment of subsection-K which forces them to invest resources in bonds or trusts that often are dedicated to state investments.

 

-Provincial debt: Given the great concentration that there is in national government tax collection, it has made it so that the provinces have to seek financing in the capital markets. In these months, important sums of money have been issued in dollar-linked bonds. A debt that has grown with the increase of the devaluation of the official dollar in recent months.

 

The heirs

 

The interesting thing is that Cristina Kirchner's government ends in two years, but its inheritance exceeds it. This is a brief enumeration of the debt fronts that will have to be resolved.  Some are simpler, others more complicated. Not all debt is bad, and all debt can be, in principle, refinanced.

 

But there are at least two evident conclusions. On the one hand, there is no reason to celebrate; and the other, much less reason to spend on account of the future inheritance.