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Argentina made its first agreement with a group of “holdout” creditors that rejected debt restructurings after the 2001 default on Tuesday, moving a step closer to regaining unfettered access to international capital markets.
The new government of President Mauricio Macri, who has vowed to normalise relations with the rest of the world, will pay a group of Italian bondholders $1.35bn in cash. That represents 150 per cent of the value of the $900m in bonds that Argentina defaulted on 15 years ago.
The deal sets a tough precedent for parallel negotiations taking place in New York between Argentina and another group of holdouts led by US billionaire Paul Singer’s Elliott Management, who are seeking to be paid around $3.50 on the dollar, or a total of around $9bn.
Alfonso Prat-Gay, finance minister, said last month in Davos that Argentina would offer the group of US hedge funds $1.20 on the dollar, although a formal proposal is due to be made this week.
The dispute with the US hedge funds remains an obstacle to Argentina’s return to the capital markets after they won a legal victory in New York in 2012 that prevented the South American country from paying other creditors before paying the holdouts in full. This led to Argentina’s second default this century in 2014.
“We are going to be tough in the negotiation [with the US hedge funds] over the interest,” said Mr Prat-Gay at a press conference on Tuesday. He was highlighting that Argentina was only paying a third of the accumulated interest that the Italian bondholders have been demanding at the International Court for the Settlement of Investment Disputes — so far without success — or a total of $2.5bn in principal and interest.
“There are some who want to charge an unacceptable interest rate,” added Mr Prat-Gay, referring to the US hedge funds.
We are going to be tough in the negotiation [with the US hedge funds] over the interest
More than 92 per cent of bondholders accepted debt restructurings in 2005 and 2010 that implied losses of about 70 per cent of the original value of their bonds. The remaining holdouts who refused the restructurings own debt with a total face value of more than $6bn at the time of the default. By some estimates, with interest included, those bonds could now be worth more than $20bn.
“After 14 long years, we are gratified to see this affair end in a manner that will result in a fair settlement of the claims of the Italian bondholders. We appreciate the willingness of the administration of President Macri in Argentina to move swiftly and maturely to deal with this longstanding problem,” said Nicola Stock, president of Task Force Argentina.
TFA represents approximately 50,000 Italian retail investors, most of whom are retired and hold on average $25,000-$50,000 in bonds each. Of the original 180,000 bondholders represented by TFA, most accepted restructuring deals or have died.
The proposed agreement will be submitted for approval by Argentina’s congress, which reconvenes in March, as well as board members of TFA.
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