Tuesday, January 12, 2016

Gov’t: no offer to ‘vultures’ this week

Finance Secretary Luis Caputo (right) travelled yesterday to New York. Finance Minister Alfonso Prat-Gay (left) will only travel when negotiations reach a more advanced stage.

Cabinet Chief Marcos Peña says country will only hold preliminary talks with no need to rush

Negotiations between the country and the so-called “vulture” funds have a greater chance of being settled after the recent change of government, but a deal will have to wait some time yet, as President Mauricio Macri’s administration does not expect to make an offer to US hedge funds when talks resume in New York tomorrow.

“We don’t plan to make an offer,” Cabinet Chief Marcos Pena told La Nación yesterday. “This is a preliminary conversation.”

Although Macri’s administration highly values the possibilities that a deal would open up in terms of lowering the rates that the country and its companies pay for credit, Peña played down the urgency of striking a deal.

“All our problems shouldn’t rush us into making concrete advances,” Peña was quoted as saying, adding that there were two sides to the negotiation and not all depended on the government.

Macri’s administration is still looking for a haircut that would lower the bill with holdouts, which currently stands at around US$8 billion, even if that discount is lower than what Cristina Fernández de Kirchner’s administration demanded and what the remaining 93 percent of bondholders got in previous restructurings.

But Peña did emphasize a change of tone when compared with the past administration. “We have to lower the drama on this issue with the greatest responsibility that’s possible, with no nationalistic melodrama,” he said.

The funds, led by billionaire Paul Singer’s Elliott Management, are suing Argentina for full repayment plus interest and penalties over debt the country defaulted on in 2002. A large majority of creditors accepted about 30 cents on the dollar in 2005 and 2010 restructurings, but Elliott refused and ended up blocking the country’s payments to the remaining 93 percent of bondholders.

Peña’s office said he was in a meeting and not available to comment to expand on the issue.

Caputo in New York

Finance Secretary Luis Caputo flew to New York yesterday and was expected to meet with representatives of the so-called “holdout” funds in the office of the US court-appointed mediator brokering the negotiations.

Caputo, the former head of Deutsche Bank’s Argentina unit and ex-chief of Latin America debt trading at JPMorgan Chase, is a Wall Street insider with contacts across the financial world.

He already travelled twice to New York to meet with court-appointed mediator Daniel Pollack and discuss the upcoming negotiations. The court-appointed mediator described the meetings as “constructive,” and said “substantive negotiations” between the holdouts and the government would begin this month.

Finance Minister Alfonso Prat-Gay is not expected to travel until negotiations reach a more advanced stage.

The latest government trip to New York will see a novelty in terms of the lawyers supporting the country, as Caputo will be joined by Lee Bucheit, a re-structuring specialist from the law firm Cleary who will replace Jonathan Blackman. The government also announced it is likely to hire a new firm in the near future.

Issuing debt

The Finance Secretary might also use the trip to try to reach a final agreement with international banks headquartered in the US, which are on advanced negotiations to loan cash to Argentina’s Central Bank in order to reinforce its foreign currency reserves.

Banks have offered slightly improved interest rates to Caputo compared to what Argentina was offered last year, banking on an agreement with the holdouts and other economic reforms at home which they favour, but the deal is not closed yet.

According to Marina Dal Poggetto, chief economist and partner at the Bein & Associates consultancy agency which advised runner-up Daniel Scioli in last year’s presidential race, the coming economic scenario in Argentina will be one of attempting to raise new debt in a bid to solve liquidity problems caused by low Central Bank reserves.

“Some distortions are trying to be corrected,” Dal Poggetto told Radio El Mundo, mentioning exchange rate lag prior to the devaluation and low utility tariffs, but the new government will face a big challenge in “trying to stop the distributive conflict from escalating in a race between salaries and prices. It will be very hard to have salaries measured in dollars drop without affecting salaries’ real purchasing power,” she said.

Herald staff with DyN, Reuters, online media