As Argentina celebrates a “victory” at the Paris Club, its time to sober up because negotiations with Elliott might not be easy.

Argentina Flag

Golf claps as Argentina completes negotiations with sympathetic French

Up until 2 AM negotiating, Argentine President Cristina Fernandez de Kirchner received congratulatory golf claps as her country agreed to pay over $9.7 billion in claims over old debt.  In 2001 the country defaulted on bondholders, sticking them with a $95 billion check as they shot out the restaurant door without paying.

“It’s clearly positive that Argentina finally resolved this issue” with the Paris Club, Jorge Mariscal, chief investment officer for emerging markets at UBS Wealth Management in New York was quoted as saying in a Bloomberg article. “The big obstacle to tackle is still the holdouts.”

Eventually almost 93% of the investors have accepted payment of approximately 30% of the amount owed to them and have forgiven the other 70%, according to the Bloomberg report.  However, aggressive investors, some of whom purchased the claims of previous bondholders, wanted more.

For the past five years those sitting at the dinner table stuck with the check have been tracking down Kichner for payment.  At one point an investor attempted to re-possess the president’s plane as it was refueling.  Other attempts by hedge funds such as Elliott Management to seize an Argentine navel vessel while off the coast of Africa were initially successful, but then Argentina obtained a UN tribunal to order Ghana to release the navel ship back into Argentine hands. Efforts in court to obtain payment for past debt have yielded interesting results, most of which have favored Elliott.  Defeats in US courts and a potential ruling against Argentina in US Supreme Court have preceded Argentina negotiating with Elliott, which might get a little rough, particularly given the relative soft treatment Kirchner received in Paris.

France appears to have a favorite in the Elliott – Argentina heavyweight fight

The French government has appeared to have “had their man” in the fight between Elliott and Argentina, and it was Ms. Kirchner.  When Argentina went to court, France filed an Amicus Brief of support, providing its legal heft behind Argentina.  Then France leveled what could be considered an excessive fine against Elliott.  In the case France was seeking a fine for a disputed insider trading case that was over 1000 percent higher than the profitability of the fine, as exclusively noted in ValueWalk.  As a point of comparison, when large banks break the law, generally the fines have been a smaller fraction of the revenue generated, for instance.  It is against this backdrop of support that Kirchner negotiated with the Paris Club to settle her country’s past due balance.

All that is left is dealing with the stubborn holdouts.

Argentina starts negotiations by taking an activist approach: name calling

Argentina is starting out the negotiations by taking a swing at the holdout investors.  In a speech yesterday, Kirchner called Elliott and other holdouts “serial predators” while others in the government were more adamant. “There’s just 7 percent of creditors left who haven’t voluntarily restructured their debt, and of that 7 percent there’s 1 percent that are vulture funds that have promoted lawsuits in the U.S.,” Cabinet Chief Jorge Capitanich said yesterday during a press conference in Buenos Aires that was reported in Bloomberg.

ValueWalk sources close to the negotiations indicate that while the deal struck in the Paris Club has nothing to do with Elliott’s claims.  It does set a precedent that Argentina can address its arrears through negotiations.  Elliott and the holdouts will be waiting for that contact to be made and they could take a strong stance, as private speculation is the US Supreme Court ruling is likely to favor Elliott and the bond holders.

Based on information contained in a web site partially sponsored by Elliott designed to tell the story of bond holders, it appears as though negotiations could center on the amount of money to be paid to bond holders and the percentage of the debt paid.  In a post, however, the web site staked out its negotiating position, stating it wants total 100% repayment of the debt.

“The plaintiffs, which have been gathering favorable rulings in American courts and are waiting on the Supreme Court of that country, are claiming the totality of the debt plus interest,” a report by Silva Pisani of La Nacion newspaper reported said, as if prompting Argentina to face the facts.

“We propose that Argentina negotiate with us and with the other private creditors about the pending debts to find a mutually agreeable solution,” said Jay Newman, a strategist for the holdout bondholders said on the site.