Friday, June 5, 2015

Randazzo has a plan to face ‘vultures’: make them wait

Interior and Transport Minister Florencio Randazzo (left) is pictured with Trenes Argentinos’ president Marcelo Bosch in a file photo.

Close ally says presidential hopeful would not give in to the demands of holdout creditors

Victory Front (FpV) presidential hopeful Florencio Randazzo’s proposal on how to deal with the so-called “vulture funds” seems to be on the table, and it appears to be quite different from that being espoused by advisers to Buenos Aires Governor Daniel Scioli, his competitor in the August primaries.

Days after Randazzo took aim at economist Miguel Bein — with whom Scioli consults regularly on economic matters — for saying Argentina could find a middle ground in negotiations with holdout creditors suing the country for full payment of defaulted bonds, one of his key allies said the minister would keep them waiting.

Eventually, Trenes Argentinos’ president Marcelo Bosch argued, the “vultures” will blink first, and accept the offer that the remaining 93 percent of bondholders took in the 2005 and 2010 bond restructuring offers.

“While vultures wait, we can issue under local law to finance the government and use multilateral and Chinese loans,” Bosch told financial news agency Bloomberg in an interview.

Bosch, a former Credit Suisse banker who left his job in 2007, seemed happy enough with how his proposal was portrayed, retweeting the interview in his personal account with a message that said this was “Randazzo’s plan.”

Argentina has not only managed to issue dollar-denominated debt outside the reach of New York District Judge Thomas Griesa — a move that it could repeat in the future to further strengthen its finances away from US jurisdiction — a new government could have another bit of help on its side if it decided to take this tougher stance: time.

Bosch appears confident the holdouts will eventually give up. Another full presidential period would require a much bigger wait than NML Capital and the rest of the plaintiffs’ are looking at present.

If Scioli or an opposition candidate such as Mauricio Macri, who has also hinted at reopening negotiations, were to win October’s presidential race, shareholders at those hedge funds would have higher odds of getting a quicker return on their investment, but if that prospect moves to 2019 or beyond, they might run out of patience.

Of course, Randazzo would be taking some risks too, as the hedge funds would also have more time to find a way of blocking the country’s new debt issues, so another clear policy difference between both candidates seems to be taking shape.

In the past few weeks, Bein had criticized the government’s monetary policy since 2010, suggesting a gradual lift on the restrictions of the dollar trade, while Randazzo’s camp has remained supportive of all decisions.

Although hedge funds won’t be happy with the proposal, Bosch says markets will support it. “We need to first pay those who bought at par in good faith to show respect for New York law,” he said. The market will understand this and see it as a credit positive.”

Another swap?

Getting tough on vultures wasn’t his only proposal regarding foreign debt. Bosch also said that the GDP warrants whose re-payment Judge Griesa blocked could be restructured again.

“Since we’ve been declared in default technically and legally, the prospectus clearly stipulates that the GDP coupon can be restructured,” he said.

The aim would be to reduce the returns that the growth-linked bonds grant today to those holding them. He saw it as an opportunity to reduced indebtedness rather than a way out of Griesa’s sanctions.

If instead of this a deal were to be made, Griesa would likely lift his restrictions and the old rules to repay restructured bondholders would apply.

Currently, the country is considered to be in technical default by the International Swaps and Derivatives Association (ISDA), after the payments it deposited for restructured bondholders could not reach its ultimate destination, with banks fearful of violating Judge Griesa’s orders to stop them until the holdouts’ complaints were heard.

Argentina says it has no problem negotiating with the funds but says it has to be made in equal terms to the bondholders who accepted a haircut in previous debt restructurings. The plaintiffs’ would still make a profit if they accepted those conditions, as bonds were bought on the cheap when the country was verging on default around 2001, but they are holding out for more.

Meanwhile, they are trying to seize Argentine assets around the world and block other debt issues from the country to try to enforce their demands.

Although most polls say Scioli is leading the FpV primary, an explicit endorsement from the outgoing President Cristina Fernández de Kirchner, whose popularity is on the rise, could turn Randazzo into a stronger competitor.

Herald staff with online media