The Economy Ministry has conversed about an agreement that involves the vulture fund Elliott. It is a move to deactivate the debt lawsuit in the United States and, thereby, avoid an eventual setback in the U.S. Supreme Court

Clarin

The government, behind a new offer to the vultures

 

Sunday, October 20, 2013

 

By Ezquiel Burgo

 

The Economy Ministry has conversed about an agreement that involves the vulture fund Elliott.  It is a move to deactivate the debt lawsuit in the United States and, thereby, avoid an eventual setback in the U.S. Supreme Court.  Last week, in Washington, Economy Minister Hernan Lorenzino met with investment funds and bankers in parallel to the IMF annual assembly.  The objective? They brought him proposals for Elliott to drop its claim without the government publicly capitulating to the holdouts.

 

In recent days, sources linked to bondholder friends of the government and the vulture funds confirmed to Clarin that the signals between both parties were more intense than usual.  In the last two years, the government has received various proposals for agreeing with the vultures but rejected all of them.

 

“The green light still hasn’t come from Olivos,” said someone who knows of the conversations.  “But the government was frightened by the setback in the Appeals court on August 23, and Elliott is tired.”

 

Clarín communicated with the Economy Ministry on the matter.  There they said there would be no comment.

 

At this moment, the market is watching two strategies to put an end to the lawsuit that is heading to the U.S. Supreme Court.

 

One of the plans is that Argentina’s bondholder friends cede a part of the value of their bonds in favor of Elliott.

 

If they all accept, the bonds (Discount) could go up.  The vultures would gain less than the US$1.5 billion that Judge Thomas Griesa ruled in their favor, but even still they would get more than they first invested (Elliott bought bonds for US$100 million).  The bondholder friends of the country would see the value of their bonds go up.  And the government would resolve the issue without publicly capitulating before the holdouts.

 

The second formula to settle with the vultures would be to copy the ICSID model.

 

The Argentine government two weeks ago signed an agreement to pay off the judgments with give public services companies in the international courts of the ICSID.  But only one of them will be paid.  The other four sold their lawsuits to funds: in three of them, to Gramercy, an institution that is friendly to the government.

 

What would happen if an investor group bought Elliott’s lawsuit and negotiated with Argentina for an end to the claim in exchange for receiving a bond offer?

 

“There are those that believe that this operation could come together in the short term,” they said close to the negotiations.

 

In the government there is fear that the Supreme Court would reject taking the case.  In whispers, at Economy they acknowledge that there were mistakes in the legal process.  And that the political limits didn’t help either.  The vultures, for their part, having arrived practically at the end of the judicial path understand that even in case Argentina suffers a setback in the Supreme Court, they might not collect: Argentina publicly refuses to pay them.  The vultures sent conciliatory messages recently like a column from the portfolio manager of the Elliott fund in the Financial Times or statements from their attorneys on the financial news network CNBC in the U.S.

 

Howeer, a source close to Elliott says that “it is not ready to surrender.  Also, I think that the Economy Ministry doesn’t have the green light for moving forward on this like it did with the ICSID issue.”

 

Argentina, according to a report on Friday from Telam, has hired attorney Paul Clement, ex-solicitor general of the U.S., to join the country’s defense team in the lawsuit.

 

Tomás Canosa collaborated on this story.

 

 

Clarin

The model, the controversial payments to close the lawsuits in the ICSID

A fund negotiated with the government on the debt with privatized companies.  Ties with Boudou. 

 

Sunday, October 20, 2013

 

Last week, during the trip by Economy Minister Hernan Lorenzino to Washington, the payment offer was learned about from Argentina to the privatized companies that filed claims before the World Bank tribunal, better known as the ICSID.

 

However, it was only on Thursday that the payment of the sentences was formalized officially.  It was when the government increased the national state’s debt by 3 billion pesos to make the agreement official.

 

Starting with this measure, Argentina made the decision to pay the lawsuits won by companies that had initiated the claims when the devaluation happened in 2002.  Those companies are Azurix (which provided potable water and sanitation in the province of Buenos Aires);  Blue Ridge (gas); Vivendi (Aguas del Aconquija, Tucumán); National Grid (ex-partner in Transener) and Continental Casualty Company (ex-partner of CNA ART).

 

All these companies filed suit at the end of convertibility, implemented during the Menem government.  And now thanks to an extrajudicial settlement, they will collect with Bonar 2017 and Boden 2015 bonds.

 

These companies will not collect directly on the cases they won, but will do so through intermediaries that acquired – with the practices of vulture funds – the debts that the firms suing Argentina had.  Among those intermediaries are found Blue Ridge Investment, CC-WB Holdings LLC, and NG-UN Holdings. Also behind the debts for the contracts of Vivendi Universal, Aguas de Aconquija and Azurix, one finds subsidiaries of Gramercy Funds Management, the investment fund with ties to Vice President Amado Boudou.

 

This fund would be one of those which bought the lawsuits, with heavy discounts and now will obtain excellent profits with the government’s decision.

 

Gramercy acted like a vulture fund in the negotiation of the swap that Nestor Kirchner carried out in 2004.

 

It did not participate and boycotted the agreement.  But it changed its attitude and its participation was key for the reopening of the swap in 2010 to not fail, the one which Boudou carried out when he was Economy Minister.  Gramercy at the time went to Boudou through the Arcadia firm, led by attorney Marcelo Etchebarne, as Clarin reported months ago.

 

Now the intermediation of Arcadia and the leadership of Amado Boudou are under investigation by the federal courts for alleged “influence trafficking”.

 

The case is also being investigation for whether Arcadia was used as a “screen” for Boudou to collect illegal commissions in the refinancing of foreign debt.

 

What is clear is that the steps taken by the government in these negotiations are generating discomfort in the opposition, as it is already financially compromising future administrations.

 

Argentina – followed by Venezuela – is the country facing the largest number of claims from companies in the ICSID.

 

The total number of open complaints comes to 50 cases, of which there are five that obtained favorable rulings for the companies.

 

 

Clarin

The government, caught in its own web

 

Sunday, October 20, 2013

 

by Alcadio Oña

 

The government is insisting, all the time, in proving right those who accuse it of making improvised decisions and event applying measures that seem similar to the ones advised by orthodox cookbooks that they so criticize.

 

In an operation with quite suspicious edges to it, which have splattered Amado Boudou, on Thursday it was decided to pay the debts on claims that the country faces in the ICSID, the World Bank tribunal that settles claims between private companies and states.  The rulings that are now being honored come from 2005, 2006 and 2008, making them payments pending for between five and eight years.  Improvisation and haste together.

 

With this move, the government sought to reopen lines of credit that had been impeded in the World Bank and, at the same time, get the support of the United States in the lawsuit that has been almost lost with the vulture funds.  A lot, in both cases.

 

The resources are not coming all at once, generally serving to cover obligations with the organization and they demand that Argentina finance part of the investments.  The result: a slow effect and also neutral on the side of the reserves, if that is the intention that is motivating the move.

 

Then, some experts believe it’s excessively optimistic to believe that the U.S. will cheerlead in favor of the Kirchnerist government before the Supreme Court of their country in the case of the vulture funds.  And more when sentences have accumulated both from the district and appellate courts and the bilateral relationship is going through a bad time.  The payoff could be, then, that Argentina pays in the ICSID with public bonds that come due in 2015 and 2017 and guarantee high yields and the movie continues.

 

For other analysts all of this consists of simply buying more time, without the operation being possibly interpreted as a hard shift in the way of connecting to the world.

 

Improvisation, lots and lots of improvisation, and lots and lots of band aids in the rebound from the capital amnesty.  After the failure of the Cedin, getting people to accept Baade bonds is the last play left for getting dollars into a coffer that is shrinking more and more.

 

Until now, all the pressures from Guillermo Moreno on companies has hit against a wall. Mercedes Marcó del Pont, the boss of the Central Bank, also didn’t give a free path for attracting financiers that the Commerce Secretary wanted to take the Baade, because she fears being tangled up in the justice system.

 

Says a banker who is following the process closely: “There are more than enough doubts, while perhaps there are people who are ready to enter because they see a deal or only to get the creep off their back.”  What is clear is that the original amnesty left nothing standing.

 

Among other signs of the general dislocation, there seems another pair, this time taken from the orthodox cookbook.

 

One of them is to have sped up the rate of devaluation, some months ago going above 30% annualized, despite Kirchnerism always saying that this medicine is counter-indicated for its impact on workers’ incomes.  The other, to uphold growing interest rates, which in its model means harming economic activity.

 

The government has been keeping the official dollar at a floor rate for a long time, thinking that it would work as an anchor against inflation  The tool not only showed itself to be ineffective, because prices continue rising, but also costly.  The exchange rate delay which has built up has dislocated exports and at the same time incentivized the purchasing of cheap hard currency.

 

Behind the latest swerves there lurks, evidently, the intention to discourage the demand for dollars, and even when possible reduce the loss of reserves.  According to what the Central Bank accounts and the market are warning, lots of noise and little result.

 

Without contributing a huge discovery, says a consultant: “They are squeezed and now they are applying corrections that they should have applied a long time ago.  In addition to being late, the remedy comes with the collateral risk of stimulating inflation.”  One could say it in the less elaborate accounting of a merchant: if the dollar goes up, my prices go up.

 

Perhaps it is a discovery, in turn, a proposal from the same consultant.  It consists of rewarding those found in the complete sequence a moving of the set pieces, ordered and coordinated as part of a plan, in place of a succession of short term band aids taken out in search of a way out, without any of them finding an exit. 

 

What will happen with prices if after the elections the government decides to strongly increase power and gas rates, even for relatively high consumers and more or less accommodated sectors?  The operation, which is maturing in some official areas, was reported by Clarin a month ago, but now it remains to be seen if the middle class is also going to be added in.

 

It is another remedy coming out late, pushed on by unsustainable energy imports and a bill for subsidies that is also unsustainable.  Inflation, the dollar and pesos together, all very similar to those dogs that keep going around and around in the same place.

 

With the propriety of those that know what they are talking about, various experts warn that problems that will not take long to arise.  Among others, the energy crisis, the phenomenal rise in subsidies, the demand for dollars encouraged by the exchange rate delay, the state of the public accounts and the inflationary process.

 

A relative of these imbalances is another from a more recent generation: the persistent drop in the reserves, which is reaching US$9 billion since January and totals more than US$13 billion since the start of the currency clamp.  And it appears troubling, because it could compromise the fire power of the Central Bank against any contingency and put a squeeze on debt payments.

 

In place of anticipating things yet to come, Kirchnerism runs ahead with its narrative.  “They are the usual naysayers, their predictions never come true, they are promoting an adjustment against the poor,” it said and still says.  And worse things: those who defend the interests of economic groups and international capital share the ideology of the Monetary Fund and are all looking to overthrow the government.

 

Everyone was thrown into the same bag, even those economists that had supported the “model” and those that today urge the dealing with severe structural imbalances.  Perhaps late, because they have been added to the others from the K-kitchen.

 

From there, the government will never admit to its own mistakes.  Less so recognize that most of what has happened has been predicted.

 

“They cannot accept that something that has been said to them could be correct,” warns an economist with a philosophic tone.  Worse would be that they only believe in what they believe.  That gray backdrop is fluttering for the two long years left until 2015.

 

 

La Nacion

Relief and doubts over the ICSID payments

Analysts believe that by abiding by the unfavorable rulings of the World bank, the country solved the problem, while temporarily; they advise an integral plan for all the cases  

 

Sunday, October 20, 2013

 

The decision by the Argentina to pay the five companies with favorable judgments against the country in the ICSID (the arbitration tribunal of the World Bank) for complaints originating from the breaking of contracts after the 2001 crisis, was characterized as a positive step by analysts consulted by LA NACION.

 

In every way they clarified that it is far from a definitive solution of the problem, which still leaves thirty pending demands in the same arena – among them, the one from Repsol of Spain over the expropriation of YPF, claiming US$10 billion – that all predict will “inevitably” have to be paid.

 

"Argentina is financially isolated and when its companies want to access international credit, they are told that the country has many open fronts: the lawsuit of the holdouts, the debt pending payment with the Paris Club and the adverse rulings in the ICSID.  This was a positive step, but the whole process will have to be followed with an integral plan,” said Eugenio Bruno, a lawyer specializing in debt restructurings.

 

"What will happen when the other companies with favorable rulings come calling?” Bruno asked. “Repsol could ask for the same bonds that were given to the five companies that agreed (Boden 2015 and Bonar X coming due in 2017) and subscription to the Baade (investment bonds in energy initially launched with the amnesty).  What arguments will they give for rejecting that?”

 

According to the attorney, “to avoid suspicion of corruption and that then they say to the government why did you give it to him and not to me, there cannot be discretionality.  There has to be an integral program, like if it were another debt swap, for any company from the 30 plus that sued in ICSID and Repsol, one could show up at the Economy Ministry and be attended to with the same conditions in an open process from here on in.”

 

The fact that the team led by Hernán Lorenzino was focused on five cases and not all of them allowed for suspicions on the market.  The favored companies are Blue Ridge (holder of the CMS Gas claim); CC-WB (holder of Continental Casualty’s claim); Vivendi (Aguas del Aconquija), Azurix Corp and NG-UN Holdings (holder of the lawsuit by National Grid, which filed before Uncitral, the UN Commission for international trade law).  

 

Yesterday, the Clarin newspaper revealed that the Gramercy investment fund, which entered into the debt swap of 2010 and which is attributed to being close to officials at Economy, created two companies, CC-WB Holdings and NG-UN Holdings, to buy favorable judgments in the ICSID from original litigants at a discount (Continental and National Grid) to then get a differential with the eventual payments from Argentina.  That means the same actions as the “vulture funds” who bought debt at an offer price and then sued countries to recover 100%.  

 

Asked by LA NACION, the Palacio de Hacienda said yesterday that it “has no comment to make” on the matter.  

 

For his part, economist José Luis Espert, said: "I am a partisan in favor of respecting contracts.  They are contracts that never should have been defaulted on, nor pesified, but they should have returned all of the deposits in dollars of the 1990s.”  

 

"From that point of view,” Espert continued, “I share the idea of bringing ourselves up to date with the final judgments that we have in the ICSID.”

 

The economist rejected those who say that the agreement will allow for an avalanche of lawsuits.  “If all the plaintiffs could come at us complaining or not is a problem for the government: it should have saved up a part of the tax collection boom.  Tax revenues rose by a billion pesos in the last decade.  IF it wasn’t done then it is the fault of a lack of foresight.”

 

According to Espert, the agreement was made because the ICSID functions within the World Bank and this, in net terms, “was lending us practically nothing and has been making it increasingly difficult to renew the debt maturities because of Argentina’s refusal to pay the judgments.”

 

"The paradox is that they will emit debt to pay debt.  The government never accounted the judgments it had in the ICSID as debt and if it is consistent now and accounts for it, it will result in increasing, in accounting terms, the public debt, while in fact it is paying one debt with other debt.”

 

Another attorney specialized in debt, who agreed to speak without being named, said “there will be no avalanche of lawsuits in the ICSID because there already was one.  Here the government seems to be saying: where there is a definitive ruling I will settle it, unless they are English, like the case of British Gas (BG), who will not be paid despite its case reaching the U.S. Supreme Court.  BG wants to attach the country and if the Court rules in its favor it will be a very bad sign for Argentina.”

 

"All the countries that have lost in the ICSID and in UNCITRAL have paid the debt in cash.  The minute you lose you have to pay.  Hugo Chavez did it, for example, because it’s not normal not to pay.  You get yourself out of a problem and the market is taking it very well.”