Argentina Debt Dispute with Hedge Funds on Deadlock

A potential resolution on the debt dispute between Argentina and hedge funds seemed ruined after Economic Minister Axel Kicillof made an offer that fell short of the demands of investors on Monday.

Argentina’s informal offer

Minister Kicillof said the proposal of the government to the hedge funds also referred to as holdouts would have terms similar to its offer to other bondholders, but with an extra enticement.

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In an interview with a local news website, Minister Kicillof said, “We want to meet all (creditors) but under fair and sustainable conditions for the country.” Argentina still wants holdouts to accept a 65% discount on the bond principal, but the country will offer some extra money such as accumulated interest on the discounted bonds since 2005.

Argentina’s informal offer came after the right upon future offers (RUFO) clause preventing a better settlement with holdouts expired on December 31. Currently, the government will now be able to negotiate a deal with the holdouts without facing demands from other creditors.

‘Two sides are so far apart’

A person close to the holdouts commented that the statement of Argentina’s economic minister represented “simply the same Take-it-or-leave it offer from 2005 and demonstrated that he is not serious about negotiating a resolution.”

On the other hand, Siobhan Morden, head of Latin America strategy at Jefferies in New York “The two sides are so far apart that it is not meaningful [referring to the offer]. The holdouts want their original par. Argentina is still only offering a fraction of what they are legally entitled to receive.”

Minister Kicillof estimated that Argentina owe a total of %23 billion to the holdouts led by Paul Singer’s hedge fund, Elliott Management. According to him, the holdout would receive $6.5 billion under the preliminary offer.  The holdouts repeatedly refused Argentina’s offers of around $0.30 on the dollar.

According to Ms. Morden, Argentina may be compelled to concede its conviction to the holdouts if it is under “extraordinary economic stress,” but it seems unlikely for now.

Minister Kicillof previously stated that Argentina would not adjust its earlier offers. Some analysts suggested that Argentina would change its position to be able to regain access to the global debt markets as the country needs to increase its foreign currency reserves to service its debts and energy imports. However, the country was able to stabilize its reserves using other measures such a currency swap with China.

Exorbitant profit

In a recent interview with CNBC, Argentina’s Ambassador Cecilia Nahón said Argentina has an offer on the table for the holdouts to join the other 92.4% of bondholders who accepted a prior exchange offer for a “300% profit.” The ambassador emphasized that the hedge funds are “seeking an exorbitant 1,600 percent profit,”  which “is not only unfair but also puts at risk any debt restructuring.”

ValueWalk previously reported that Argentina and the hedge funds are still willing to negotiate their dispute. The parties are prepared to meet and discuss the initial steps for a resolution this January.