Argentina Settles $677 Million Arbitration Cases With Bonds

Argentina agreed to compensate five companies that won rulings over investment disputes as the nation looks for the World Bank to approve $3 billion in loans, sparking the biggest bond rally in emerging markets.

The companies agreed to accept payment in dollar bonds and to reduce the principal amount of their awards by 25 percent, the Economy Ministry said today in a statement. The country will hand over local law bonds due 2015 and 2017 with a face value of $506 million for the $677 million of claims, the ministry said. The bonds traded in secondary markets at prices of 95.57 cents and 87.72 cents on the dollar respectively at 2:51 p.m. in Buenos Aires, according to data compiled by Bloomberg.

Argentina has been sued more than any other country in the World Bank’s arbitration court by investors, utilities and energy companies pursuing reimbursement for currency devaluations, nationalizations and rate freezes after the nation’s $95 billion default in 2001. To enforce existing arbitration judgments, the U.S., the World Bank’s largest shareholder, suspended in March 2012 Argentina’s participation in a trade program that allows certain goods from developing countries to be imported duty-free.

“The agreements with the companies that had obtained firm rulings, which allow for the normalization of $677 million of debt, were obtained in extremely favorable conditions for the country,” the ministry said. “The Republic won’t be using cash or international reserves” for the payment.

The companies involved are Blue Ridge Investments LLC, which owned rights to CMS Gas Transmission Company claims, CC-WB Holdings LLC, which owned rights to Continental Casualty Company claims, Vivendi Universal Sociedad Anonima, Cia. de Aguas del Aconquija Sociedad Anonima and Azurix Corp. Argentina also agreed to compensate NH-UN Holdings LLC, which owned claims from National Grid Plc.

Bond Rally

In addition, the companies agreed to invest $68 million in a government bond that matures in 2016 and carries a 4 percent annual interest rate, the Economy Ministry said. Proceeds from the so-called BAADE bond will be used to finance energy projects in Argentina.

Argentina is settling the outstanding claims in part to tap World Bank loans, Buenos Aires-based newspaper Ambito said Oct. 10. The World Bank is considering lending $3 billion to be disbursed through 2016, Economy Minister Hernan Lorenzino said Oct. 10.

The World Bank hasn’t mentioned the size of the loan and approval is subject to a vote, Yanina Budkin, a press official for the lender in Argentina, wrote in an e-mailed response to questions on Oct. 16.

Argentine bonds have rallied since Oct. 10 on speculation the nation will obtain fresh funds from the World Bank and settle some of the outstanding arbitration claims in a sign the government is normalizing relations with international financial institutions.

The extra yield investors demand to own Argentine bonds instead of U.S. Treasuries plunged 49 basis points, or 0.49 percentage point, to 855 basis points, according to JPMorgan Chase & Co.’s EMBI Global Diversified index. The spread was at 971 basis points on Oct. 9.

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