Argentina Offering GDP Warrant Buyback to Save $9.4 Billion

  • Warrants issued as part of debt restructuring in 2005, 2010
  • About $13.8 billion of the securities are outstanding

Argentina took a step toward expunging a vestige of its 2001 debt default by offering to buy back $13.8 billion of securities that reward investors as the economy recovers.

The country will save $9.4 billion if all of the so-called GDP warrants outstanding are repurchased, the Finance Ministry said in an e-mail. The securities, denominated in dollars, euros and pesos, were issued as part of debt restructurings in 2005 and 2010 as sweeteners for creditors who got burned by the country’s $95 billion default. A payout is triggered when the economy expands more than 3 percent annually.

The announcement marks another move in the country’s efforts to erase the legacy of the default and subsequent decade-long legal battle with holdout creditors led by billionaire Paul Singer. Under President Mauricio Macri, who took office in December, Argentina reached a milestone deal with the majority of disgruntled bondholders, leaving behind its default status and paving the way for a blockbuster $16.5 billion bond sale in its first return to overseas capital markets since it stopped servicing the debt.

"It makes all the sense in the world that the government would want to buy back the warrants as a way of managing their debt load," said Jorge Piedrahita, the chief executive officer at Torino Capital, a New York-based brokerage. "As long as the economy grows and the government does well, they’re expensive bonds for the country."

Argentina’s national statistics agency is expected to release its first-quarter gross domestic product report June 29. In April, it announced that it would be changing the way it measures economic expansion, sparking concern that holders of warrants will get fewer payouts. 

Dollar-denominated warrants issued in 2010 climbed 3 percent, the most in almost a month, to 10.66 cents as of 12:57 p.m. in New York.

Those who accept the so-called collar mechanism proposed by the Finance Ministry will have the option of selling the 2010 dollar-denominated warrants for a low of 10.00 cents when the option is executed, while the government will be able to buy back the securities for a high of 11.75 cents. The dollar warrants issued in 2010 closed at 9.97 cents per dollar Monday. 

"Today, the sale offer doesn’t seem attractive because the offer price is below the trading level,” said Nicolas Chiesa, a trader at Balanz Capital in Buenos Aires. “But we can’t forget that the GDP will be revised, and if the base change is negative this sale offer may turn out positive.”

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