Oct. 23 (Bloomberg) -- Argentina’s offer to swap $20 billion of bonds that were held out of a 2005 restructuring will probably be accepted by investors who own most of the debt, Stone Harbor Investment Partners and Aberdeen Asset Management Plc said.

“You could easily get participation in excess of 60 percent if the terms are only slightly worse than those offered in 2005,” said New York-based Jim Craige, who helps manage $10 billion of emerging-market debt, including some of the defaulted bonds, at Stone Harbor. “It will depend on the details.”

Economy Minister Amado Boudou said last night that the offer will be “a little bit” worse for investors than the previous one, which was worth about 30 cents on the dollar. Bonds issued in the swap will pay a single-digit rate of interest, while institutional investors will have to contribute 10 cents on the dollar for each bond tendered, Boudou said.

A participation rate of 60 percent would be “good,” Boudou told reporters in Buenos Aires, adding that he wants the swap to take place as soon as possible. The government will send documents to the U.S. Securities and Exchange Commission today, and a bill to Congress on Oct. 26 that would suspend a law that blocks it from making a new offer, he said.

Boudou didn’t give further details of the offer.

A successful swap will be an important step toward Argentina regaining access to international capital markets for the first time since it defaulted on $95 billion of bonds in 2001, said Edwin Gutierrez, who manages about $5 billion, including defaulted Argentine bonds, at Aberdeen Asset Management in London.

Market Access

“The exchange will accomplish Argentina’s goal of obtaining international market access,” said Gutierrez, who estimates about 90 percent of creditors will accept the government’s offer.

Argentine debt will rally if participation in the exchange is above 70 percent, said Igor Arsenin, an emerging-market strategist at Credit Suisse Group in New York.

“Assuming the restructuring is a success, there could be quite substantial spread compression,” said Arsenin.

A six-month rally in emerging-market debt cut Argentina’s yield gap over U.S. Treasuries by more than half to 6.79 percentage points, according to JPMorgan Chase & Co.

The so-called spread could narrow to 6 percentage points on a successful exchange, Arsenin said.

‘A Good Base’

The yield on the country’s 8.28 percent bond due in 2033 rose 27 basis points to 11.78 percent at 5:18 p.m. in New York, according to JPMorgan. The bond’s price declined 1.75 cents on the dollar to 71.50 cents. Argentina’s peso was little changed at 3.8208 per dollar.

Boudou said proposals presented to the government by Barclays Plc, Citigroup Inc. and Deutsche Bank AG, which represent owners of about $10 billion of the defaulted bonds, were “a good base to start discussions.”

An Italian investor group representing holders of the defaulted debt said it wasn’t consulted about the swap offer. Italian Task Force Argentina said in a statement posted on its Web page that it will evaluate the terms of the offer once they are known. The group said it represents 180,000 retail investors who hold $4.5 billion in defaulted Argentine debt.

Access to debt markets may allow President Cristina Fernandez de Kirchner to maintain government spending in the lead-up to presidential elections in 2011 even as growth in tax revenue slows. The move represents a change from the policies of Fernandez’s husband and predecessor, Nestor Kirchner, who vowed not to renegotiate with those who didn’t accept the 2005 offer.

‘Investor Unfriendly’

“The current government’s pretty investor unfriendly, and any about-turn on the stance would be welcome,” said Paul Herber, who helps manage $5 billion at Forward Management LLC in Seattle, including the Accessor Frontier Markets Fund, which holds Argentine stocks.

Boudou said that regaining access to international markets will be a “lever for economic growth,” by reducing borrowing costs for private companies and boosting employment.

Argentina’s borrowing requirements rose this year to $10.7 billion from $5.9 billion in 2008 as a global recession eroded tax revenue from commodity exports, according to Carola Sandy, an economist with Credit Suisse Group AG in New York.

Boudou’s announcement was made within hours of the government reporting its budget surplus in September, not including interest payments, was 224.1 million pesos ($59 million), down from 3.5 billion pesos a year earlier and the lowest of 2009.

“This is a step in the right direction, but I wouldn’t say it’s enough,” said Florencia Vazquez, an economist at Abadi & Co. Securities in Buenos Aires, in a telephone interview. “The market reaction is going to be positive, but the markets are going to start demanding other things.”

To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net; Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

Last Updated: October 23, 2009 17:22 EDT