Investors betting that talks between Argentine President Cristina Fernandez de Kirchner and holders of the nation’s defaulted bonds from 2001 will avert a second default in 13 years may be headed for disappointment, according to TCW Group Inc.
For the first time in a decade, Fernandez agreed yesterday to negotiate with holdout creditors from the nation’s $95 billion default. The dispute has whipsawed markets since the U.S. Supreme Court on June 16 left intact a ruling requiring Argentina to pay the investors, including a hedge fund run by billionaire Paul Singer, in full. The country on June 30 has an interest payment due on its restructured bonds that will be blocked if the holdouts remain unpaid.
“Realistically one cannot expect that in a matter of 10 days this negotiation will be concluded,” said Marcela Meirelles, a Los Angeles-based strategist at TCW, which oversees $135.5 billion including Argentine bonds. “It’s going to take time to iron all of this out, and there is a material chance that Argentina will be in default.”
The country’s bonds rallied 8.8 percent on average after Kirchner’s comments yesterday. That left them up 2 percent from where they were before the Supreme Court’s ruling.
In yesterday’s nationally televised address, Fernandez said she ordered Economy Minister Axel Kicillof to instruct the nation’s attorneys in New York to speak with the district judge to seek fair negotiating conditions.
The New York judge’s order requires Argentina to pay creditors including Singer’s Elliott Management Corp. $1.5 billion on defaulted debt. If the country doesn’t pay the holdouts, it’s not allowed to make payments to investors who own the country’s restructured bonds.
Fernandez says the nation could owe as much as $15 billion if forced to pay all holders of defaulted bonds on the same terms, which would deplete more than half of its foreign reserves.
Argentina also will have to avoid triggering a requirement that it pass along any improved terms to bondholders who accepted the country’s 2005 and 2010 debt swaps, said Meirelles. Those investors accepted losses of 70 percent.
“We want to meet our obligations with 100 percent of our creditors,” Fernandez said in her speech from Rosario, Argentina. “We only ask that they give us fair conditions for negotiation that are in line with the Argentine constitution and national laws.”
The president’s statement capped a week of conflicting statements from government officials. After the Supreme Court’s decision, a government lawyer told a federal court in New York that the country was willing to negotiate an agreement. Less than a day later, Cabinet chief Jorge Capitanich said officials had no plans for talks and was working to skirt the U.S. ruling.
An attorney for NML Capital Ltd., a unit of Elliott, told the district judge that the government has six weeks to negotiate, more than enough time, including a 30-day grace period after the June 30 payment deadline.
Elliott would consider accepting Argentine bonds as payment for defaulted debt, a person familiar with the company’s strategy said June 18. Any such decision would depend on the terms offered, the person said.
“What we do not know is how far apart the parties are in terms of their expectations,” Carl Ross, a money manager at Grantham Mayo Van Otterloo & Co., which owns Argentine bonds, said in an e-mail. “If they are far apart on the value of the claim, then negotiations could be protracted.”