Wednesday, January 7, 2015

Massa economists: offer ‘vultures’ more

Analysts have long said Renewal Front leader Sergio Massa (centre) would be more ‘market-friendly.’

By Ignacio Portes
Herald Staff

Pignanelli, Delgado say there is little choice for Kicillof but to improve on earlier offers

Renewal Front leader Sergio Massa’s economic advisers think there is a clear way for the government to solve the financial blockade it is suffering at the hands of US District Judge Thomas Griesa’s New York courts: offer to hand over more money to the “vulture” funds.

“We have to look for a middle ground in order to fulfill the conditions of Griesa’s ruling,” former Central Bank chief Aldo Pignanelli told the Herald yesterday. “Trying to make them accept the amount the government is offering is a lost cause because, regretably, the country already lost at the courts.”

Ricardo Delgado, seen as Massa’s top economic adviser, also expressed a similar view.

“I agree with what (Economy Minister Axel) Kicillof said recently that we need to wrap up this issue entirely, but that won’t happen if we offer the same amount as when the RUFO clause was in place,” Delgado said.“The conditions changed, so the government needs to change as well.”

Delgado was referring to the now-infamous Rights Upon Future Offers (RUFO) clause, which expired on January 1.

Their statements came only days after the expiry of the RUFO, which put Argentina at risk of multi-billion legal demands if an improved offer was made to unrestructured bondholders. The clause prevented the government from offering a better deal to the holdouts than it did during the 2005 and 2010 debt restructurings.

Massa’s economists said Kicillof’s almost identical proposal would never convince the holdouts, postponing the solution of the problem indefinitely.

“Under the RUFO, the government’s position made certain sense. But if Kicillof offers the same sum he would be showing no predisposition toward dialogue,” Delgado said.

Delgado stopped short of saying that would be the route Massa’s government would take if faced with Kicillof’s current dilemma, arguing that a new government would open a scenario of renewed credibility in which investors would see the country more favourably and bring new cash into the country, although not specifying how Paul Singer’s NML Capital or the so-called “me-too” bondholders could be convinced of accepting what they refuse today.

But Pignanelli did propose an alternative that he saw as viable after the elections.

In his view, the seven percent of unrestructured bondholders would accept a new bond swap, and that’s the alternative he would be looking into if he were part of the incoming government’s economic team.

The new bond would be worth less than the 100 cents on the dollar that Griesa’s courts say they are legally entitled to, but more than what the country has offered so far.

“By issuing a new bond, you could end up saving money,” Pignanelli said. “As soon as you issue it, all of Argentina’s bonds would be worth more, including the one you’d just put out.”

Pignanelli added that including all the plaintiffs at the negotiating -table would also work in Argentina’s favour to reach the best possible outcome.

He was also optimistic about negotiating the reduction of punitive fees, saying that a new proposal would be seen as “engaging in serious negotiations, opening the door to some reductions there,” which he saw as important because “they make up half of what is owed.” Sergio Massa’s spokesman Claudio Ambrosini could not be reached for comment.

Although the initial demand from NML Capital and Aurelius Capital amounted to US$1.3 billion, a footnote in a letter from Argentina’s lawyer Carmine Bocuzzi to the courts said holdouts have filed 25 lawsuits since mid-June, totalling US$4.7 billion in claims. In full, it is estimated that the roughly 60 cases of “me-too” bondholders before Judge Griesa could involve US$10 billion in claims.

Argentina’s reserves, which the country has been using to pay its foreign currency-denominated debts in the last few years, amount to slightly more than US$31 billion, meaning that paying the holdouts in full could cost as much as one-third of the country’s reserves. But Pignanelli’s proposal, involving new bonds, would circumvent the need to open the Central Bank’s coffers.

THIS GOVERNMENT OR NEXT

Massa’s economists said they hoped this government would move to solve the issue as quickly as possible, but they saw it as unlikely.

“I think the government has no more excuses to look for a solution after the expiration of the RUFO,” Delgado said. “It has to solve the issue entirely and not leave it to the next administration.”But in his view, “the government can find enough unorthodox resources that allow it to postpone an agreement, such as the currency swaps from China and the 4G tenders.”

Those moves have granted the Central Bank’s coffers enough dollars to reach October’s presidential elections without either devaluing the currency or sealing a deal with the “vulture” funds that would allow the country to issue new debt.

One of Massa’s main allies in the Buenos Aires province, lawmaker Darío Giustozzi, also said yesterday that the expiry of the RUFO clause gave the government “a new possibility of assuming the final negotiations in a responsible way to close the conflict with the bondholders and restore confidence.”

So far, President Cristina Fernández de Kirchner’s administration has not given any signs that it is willing to change tactics.

Shortly after the expiration of the RUFO clause, Kicillof stood by the government’s previous position, saying that “what we can offer is what we already offered in the 2005 and 2010 swap. This is what is backed by Argentine law.”

Pignanelli said the government “made the problem worse” with its Sovereign Debt law, which offered the restructured bondholders blocked by Judge Griesa from receiving debt repayments the possibility of bypassing New York’s banks by collecting their money through state-owned Banco Nación Fideicomisos in Buenos Aires, because the law “ratified the same offers made in the restructuring process of 2005 and 2010.”

In his view, Sergio Massa’s Renewal Front’s proposed bill opened the door for improving the offer to the holdouts — even if it did not say so explicitly — because it also did not endorse keeping the country’s offers on the same levels as in 2005 and 2010.

Economy Ministry sources have confirmed that no big changes should be expected in the short term, a view that analysts widely share. Speaking with the New York Times, Sobhan Morden, head of Latin America strategy at Jefferies in New York, said of Kicillof’s words: “The two sides are so far apart that it is not meaningful.”

“The holdouts want their original par. Argentina is still only offering a fraction of what they are legally entitled to receive.” Only “extraordinary economic stress” could change the government’s position, Morden said, citing a balance-of-payment crisis as an example of something that could change that position. For now, at least, that seems unlikely.

@ignacioportes