Archive for the ‘ARGENTINE UPDATE’ Category

ARGENTINE UPDATE – Jun 26 & 30, 2014

3 julio, 2014
 
 
 
 
 
 
 
 
 
 
1. CORRUPTION CHARGES ADD TO ARGENTINA’S DEBT WOES (Financial Times)
By Ed Stocker
July 1, 2014
It hasn’t been a good few days for Argentina’s government. First, a New York court ruled to block payments on its restructured debt, leaving the country teetering on the brink of its second default in 13 years. Then, in another judicial blow – this time from Buenos Aires – vice president Amado Boudou was formally charged in a corruption scandal.
Boudou heard about the decision late on Friday evening when in Cuba. The charge is the culmination of an investigation into Ciccone, a printing company rescued from bankruptcy and awarded a government contract to produce pesos. The vice president, charged alongside five other defendants, is accused of using middlemen to gain a 70 per cent stake in return for favours.
The bribery charge is particularly bad for the government, coming at a time when it is trying to hold the moral high ground over its restructured debt repayments. Buenos Aires has argued that it is willing to repay the debt, taking out adverts to this effect in the Financial Times, New York Times, Wall Street Journal and others.
In the adverts, Argentina complained that having bonds issued under US jurisdiction “does not mean accepting court decisions that are impossible to comply with. All the more so if any such decision violates the sovereign immunity principle effective in the US.” In addition, it has sought to deflect the blame by attacking hedge funds – which President Cristina Fernández refers to as “vultures” – as agents bent on “extortion”.
The ruling this week by Thomas Griesa, a US District Judge, makes it illegal for the country to proceed with $832m worth of payments on its restructured debt, without first settling with so-called holdout creditors who refused to take part in the restructuring. The country can still avoid a formal default by settling with holdout investors during a 30-day grace period.
Whatever happens on the issue of debut repayment, the charges of corruption at the heart of the Fernández administration have undermined attempts to maintain a moral stance on the debt issue.
Economist Martín Redrado was quoted as saying on the news portal Infobae that the ruling “affects the credibility of the country from the institutional point of view”. Meanwhile, the ex-president of the Central Bank, Javier Gonzalez Fraga, said on local radio that Boudou’s charge “fed Griesa’s vision that we’re corrupt because we don’t respect the law”.
“The appeal [against vulture funds] has lost part of its attractiveness,” argued Claudio Iglesias, director of Economía y Sociedad public opinion consultancy. “How can a nation whose vice president is suspected of corruption give moral or other types of lessons to the world?”
The president didn’t comment on Monday when inaugurating a new road project, maintaining the government’s silence. Cabinet chief Jorge Capitanich’s had earlier blamed press partiality ­ – a common government scapegoat – while claiming he wasn’t a “criminal lawyer”.
Boudou was once seen as an heir apparent. Fernández’s right-hand man during her re-election campaign in 2011, he was promoted as the Harley Davidson-riding, guitar-playing former economy minister who could connect with Argentina’s youth. But the decision now facing Fernandez is whether to stand by Boudou or cut him loose.
What is clear is that the president is increasingly vulnerable on the home front, with the corruption charges swirling, inflation spiraling out of control and the country officially in recession. Such a confluence of domestic woes reduce her room to deflect criticism by citing external malevolence such as “vulture funds” or the territorial dispute with the UK over the Falkland/Malvinas islands.
A poll released over the weekend by Poliarquía shows that 65 per cent of the Argentineans surveyed believed that the country should accept the US court decision and pay the debt, suggesting that people are tiring of the fighting talk.
The poll also showed that only 38 per cent thought the handling of the external debt issue had been positive under Fernandez’s administration compared to 52 per cent during the previous government of Néstor Kirchner, the incumbent’s husband who died in 2010.
“The Boudou case simplifies things for the opposition,” said Iglesias. “Before they didn’t know what to do regarding vulture funds because they didn’t want to be seen as unpatriotic. Questioning Boudou’s moral conduct is much more comfortable for them. It’s also easier for the average Argentinean to understand.”
2. WORLD WATCH: ARGENTINA: WTO RULES AGAINST IMPORT REGULATIONS (The Wall Street Journal)
By Matthew Dalton
2 July 2014
The World Trade Organization ruled that import regulations imposed by Argentina violate international trade rules, European officials familiar with the decision said.
The case was brought by the European Union, the U.S. and other countries and challenged what they say are protectionist policies by Argentina.
3. WTO RULES AGAINST ARGENTINE IMPORT REGULATIONS (Dow Jones Institutional News)
1 July 2014
BRUSSELS–The World Trade Organization has ruled that a swath of import regulations imposed by Argentina violate international trade rules, European officials familiar with the decision said.
The case was brought by the European Union, the U.S. and other countries and challenged what they say are protectionist policies by the government of Argentine President Cristina Kirchner. The EU says Argentina enacted the regulations to try to bolster its industrial base and substitute imports with domestically made goods.
The policies have drawn criticism from the world’s biggest developed economies, which in a statement two years ago called them “unbefitting any WTO member.”
Since 2011, Argentina has required importers to obtain licenses from the government that aren’t automatically renewed for products ranging from cars to electronics. This is a complicated process that the EU contends discourages companies from buying foreign-made products. Importers have also been forced to preregister with the Argentine government since 2012.
Argentina uses these procedures to scrutinize the foreign trading activities of importers and possibly pressure them not to import more than they export, the EU claims.
A spokesman for the Argentine foreign ministry declined to comment.
Mrs. Kirchner’s government has repeatedly clashed with foreign companies and investors. In 2012, it decided to nationalize YPF SA, a unit of the Spanish oil company Repsol, drawing protests from Spain and the EU. Last month, the U.S. Supreme Court refused to hear an appeal of a lower-court ruling that said Argentina must repay holdout creditors from its default in 2001.
A confidential version of the WTO ruling was circulated last week to the parties in the dispute, a spokesman said, while declining to comment on the substance of the decision.
The ruling by the Geneva-based arbiter of trade disputes could allow the EU, the U.S., Japan and others to retaliate against Argentina with export tariffs. But before that happens, Argentina must exhaust its appeals at the WTO, a process that could take years.
4. S&P PUTS ARGENTINA’S FOREIGN CURRENCY SOVEREIGN CREDIT RATINGS ON CREDITWATCH NEGATIVE (The Wall Street Journal Online)
By Josh Beckerman
1 July 2014
Argentina Had Missed a $539 Million Interest Payment on June 30
Standard & Poor’s Ratings Services on Tuesday placed Argentina’s foreign currency sovereign credit ratings on CreditWatch with negative implications.
The move reflects the ratings firm’s assessment that there is “at least a one-in-two probability” that a $539 million interest payment missed on Monday won’t be cured within the 30-day grace period.
S&P said it would wait until the end of the grace period before resolving the CreditWatch status “because we see a sufficient chance that negotiations between Argentina and the holdout bondholders will conclude without Argentina defaulting under our criteria.”
Argentina said Monday night that it will send a delegation to meet with a court-appointed lawyer on July 7 as it tries to resolve a dispute with a small group of creditors that could see the South American country default for a second time in 13 years.
5. S&P PUTS ARGENTINA ‘CCC-/C’ FOREIGN CURRENCY RATINGS ON WATCH NEGATIVE (Dow Jones Institutional News)
1 July 2014
The following is a press release from Standard & Poor’s:
OVERVIEW
     — On June 30, 2014, the Republic of Argentina missed a US$539 million interest payment on its discount bonds due in December 2033. Under the terms  of the discount bonds, Argentina has a 30-day grace period following the  scheduled interest payment date to make payment without defaulting. Standard &  Poor’s does not rate the discount bonds.
     — The missed payment is the latest development arising out of  Argentina’s 2005 and 2010 restructurings of its sovereign debt and the  challenges to such restructurings by certain “holdout” bondholders.
     — We are placing our ‘CCC-/C’ long- and short-term foreign currency sovereign credit ratings on Argentina on CreditWatch with negative implications, reflecting our assessment that there is at least a one-in-two probability that the missed payment will not be cured within the grace period.
     — We will lower our foreign currency sovereign credit ratings on Argentina to selective default (‘SD’) if it fails to pay the delinquent interest on the discount bonds within the grace period or if it undertakes a debt exchange that would amount to a “distressed exchange” under our criteria.
RATING ACTION
On July 1, 2014, Standard & Poor’s Ratings Services placed its ‘CCC-/C’ unsolicited long- and short-term foreign currency sovereign credit ratings on the Republic of Argentina on CreditWatch with negative implications. At the same time, we affirmed our ‘CCC+/C’ long- and short-term local currency sovereign credit ratings and ‘raBB+’ national scale rating on Argentina. The outlook on the long-term local currency rating remains negative. In addition, the transfer and convertibility (T&C) assessment remains ‘CCC-‘.
RATIONALE
The CreditWatch placement reflects our view of at least a one-in-two probability that Argentina will not pay the outstanding US$539 million interest payment on the discount bonds within the 30-day grace period allowed thereunder. According to our criteria (see “Timeliness Of Payments: Grace Periods, Guarantees, And Use Of ‘D’ And ‘SD’ Ratings,” published Oct. 24,
2013), we may wait until the end of a grace period following a payment default if such grace period is 30 days or less and if we believe that the missed payment may be cured. In Argentina’s case, although we believe that there is a greater than one-in-two chance that the delinquent payment will not be made during the grace period–or the payment will be made as a “distressed exchange” under our criteria–we have nevertheless decided to wait until the expiry of the grace period before resolving the CreditWatch because we see a sufficient chance that negotiations between Argentina and the holdout bondholders will conclude without Argentina defaulting under our criteria.
In 2005 and 2010, Argentina restructured several hundred of its defaulted sovereign obligations (original obligations) through a “debt exchange” (for a description of the events leading to the restructurings, see “Argentina Long-Term Ratings Lowered to Selective Default,” published Nov. 6, 2001). The bonds issued in exchange for the original obligations had, on average, a par
value of less than half of the par value of the original obligations and included par bonds, quasi-par bonds, GDP-linked securities, and discount bonds due in December 2033 (discount bonds). During these two offers, 92.4% of the eligible debt was exchanged. Argentina indicated that on completion of the debt exchange, it would no longer honor untendered original obligations.
Some of the original obligations were governed by New York law. Certain distressed debt funds and other investors acquiring sizable positions in the original obligations did not participate in the debt exchange and sued Argentina in the U.S. District Court in Manhattan, demanding payment under the terms of the original obligations. In 2013, the District Court agreed with these holders and ordered Argentina to pay all amounts due under the terms of the unexchanged original obligations. Argentina then offered similar terms to the ones provided in 2005 and 2010, but the holders of the defaulted debt rejected that offer.
On June 26, 2014, Argentina paid the Bank of New York Mellon (BoNY), as trustee for the discount bonds, $539 million in respect of an interest payment due thereon on June 30, 2014. On June 27, holders of unexchanged original obligations asked the District Court to enforce a previous court decision to block the interest payment to holders of the discount bonds until the holders of the unexchanged original obligations received the amounts due to them. Instead, the District Court ordered BoNY to return the funds to Argentina. We understand that Argentina and original obligation bondholders may be in negotiation.
The affirmation of the ‘CCC+/C’ local currency ratings reflects our view that the potential disruptions to payments on Argentina’s external debt are not likely to further erode its ability to service debt issued in local currency under local law. We also maintained our ‘CCC-‘ T&C assessment for Argentina as we believe it already reflects the risk that the government could further tighten its exchange control laws and policies to the extent that they impair the ability of the private sector to gain access to foreign currency to service its debt.
We also think that Argentina will maintain timely payment to its multilateral creditors, as it has done in the past.
CREDITWATCH
If Argentina can reach an agreement with its holdout creditors and service its external debt within the grace period, we could remove the ratings from CreditWatch.
Absent a payment cure, we would likely lower our foreign currency sovereign credit ratings on Argentina to selective default (‘SD’).
If and when Argentina resolves its issues with the holdout creditors and holders of the discount bonds–either before or after we assign a ‘SD’ rating for the June 30 missed payments–we could raise our ratings on Argentina, potentially to the high ‘CCC’ or low ‘B’ categories. This future assessment would depend on our appraisal of residual litigation risk, Argentina’s access to international debt markets, and, more broadly, its credit profile at that time.
KEY STATISTICS
RELATED CRITERIA AND RESEARCH
Related Criteria
     — Timeliness Of Payments: Grace Periods, Guarantees, And Use Of ‘D’ And ‘SD’ Ratings, Oct. 24, 2013
     — Sovereign Government Rating Methodology And Assumptions, June 24, 2013
     — Methodology For Linking Short-Term And Long-Term Ratings For Corporate, Insurance, And Sovereign Issuers, May 7, 2013
     — Criteria For Assigning ‘CCC+’, ‘CCC’, ‘CCC-‘, And ‘CC’ Ratings, Oct. 1, 2012
     — Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009
     — Rating Implications Of Exchange Offers And Similar Restructurings, Update, May 12, 2009
     — Understanding National Rating Scales, April 14, 2005
Related Research
     — Inter-American Development Bank Ratings Affirmed At ‘AAA/A-1+'; Outlook Remains Stable, June 30, 2014
     — The Republic Of Argentina Long-Term Foreign Currency Rating Lowered To ‘CCC-‘ From ‘CCC+'; Outlook Is Negative, June 17, 2014
     — Sovereign Defaults And Rating Transition Data, 2013 Update, April 18, 2014
     — Distressed Sovereign Debt Exchanges: Examples From The Past And Lessons For The Future, June 28, 2011
     — Argentina (Republic of), Jan. 11, 2002
In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see ‘Related Criteria And Research’). At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook.
RATINGS LIST
Ratings Affirmed; CreditWatch Action
                                                                        To                 From
Argentina (Republic of) (Unsolicited Ratings)
 Sovereign Credit Rating
  Foreign Currency                         CCC-/Watch Neg/C   CCC-/Negative/C
Ratings Affirmed
Argentina (Republic of) (Unsolicited Ratings)
 Sovereign Credit Rating
  Local Currency                           CCC+/Negative/C
 Argentina National Scale                  raBB+/Negative/–
 Transfer & Convertibility Assessment      CCC-
This unsolicited rating(s) was initiated by Standard & Poor’s. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor’s has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used.
6. FITCH: ARGENTINA’S MISSED COUPON PAYMENTS RAISES POSSIBILITY OF DEFAULT (Dow Jones Institutional News)
1 July 2014
The following is a press release from Fitch Ratings:
Fitch Ratings-New York-01 July 2014: Argentina’s entry into the grace period related to its coupon payments on foreign law exchanged securities, due on June 30, raises the specter of a possible default, according to Fitch Ratings.
The grace period for these securities ends on July 30, 2014. Fitch currently rates Argentina’s Foreign Currency IDR ‘CC’, which already incorporates a very high default risk. In addition, Fitch understands that coupon payments of exchanged bonds issued under local law that were also due on June 30 (Discount bonds denominated in USD and ARS) were made in a timely manner and without interruption. Fitch currently rates Argentina’s local law bonds ‘B-‘.
The legal process related to the dispute between Argentina and certain holdout creditors that did not participate in the 2005 and 2010 exchange offers culminated with the denial of Argentina’s cert petition to the U.S. Supreme Court. As such, the U.S. Lower Court ruling holds, and prohibits Argentina from making payments to exchanged bond holders unless payments are also made to plaintiffs in the case.
Fitch recognizes that negotiations could occur between the government of Argentina and holdout creditors, although the success and timing of such a process is difficult to predict. Fitch will continue to monitor developments in the coming weeks.
Absent a negotiated settlement with the holdouts or a reinstatement of a stay order allowing Argentina to continue servicing its exchanged bond debt, there is a high risk that Argentina will not make the overdue coupon payment at the end of the grace period. In such a scenario, Fitch would downgrade Argentina’s FC IDR to ‘RD’ (Restricted Default) and the bond ratings of the affected securities to ‘D’ (Default). Moreover, Argentina’s Local Currency rating of ‘B-‘ with a Negative Outlook could also face downward pressure in this scenario.
On the other hand, a successful agreement with holdout creditors that settles this case definitively and reduces the risk of interruption in payments to exchanged bond holders would be credit positive.
7. ARGENTINA EYES CHANGING BANK TO PAY EXCHANGE BONDHOLDERS (Market News International)
By Charles Newbery
1 July 2014
Plans Underway to Begin Talks With Holdouts July 7
BUENOS AIRES (MNI) – The government said Tuesday it is considering changing banks to pay creditors holding restructured bonds from a $100 billion default in 2001, as it plans talks this week to avert a second default amid a court battle with bondholders who refused to participate in the restructurings.
The possibility of switching banks “is part of the analysis,” Cabinet Chief Jorge Capitanich said in a televised press conference.
This would involve changing the paying agent for the restructured bonds to possibly Banco Nacion, the largest state bank, as the government is trying to figure out how to pay the 92.4% of bondholders who accepted 30 cents on the dollar in restructuring agreements in 2005 and 2010.
The latest payment was due Monday, and the government Friday tried to wire $539 million to the Bank of New York Mellon, the paying agent for the restructured bonds, to make a $539 million payment as part of a total of more than $1 billion due.
But U.S. federal judge Thomas Griesa, who has been presiding over the holdouts case, said the payment would be “illegal” because it would violate his order to pay $1.5 billion owed to the plaintiff creditors, among them a hedge fund of American billionaire Paul Singer.
These holdouts won a lengthy case based on an equal treatment clause in the bond contracts, meaning the country must pay the plaintiffs at the same time it makes its next payment to the holders of restructured bonds.
Argentina still has a 30-day grace period, until July 30 to make the payments, without being considered in default.
The Economy Ministry announced Monday night it would send a team of negotiators to New York July 7 to launch talks with an attorney appointed by Griesa to mediate. Capitanich, who forms part of an inner circle advising President Cristina Fernandez de Kirchner on the debt situation, said the team will be announced later this week.
But the solution is not obvious.
Gaston Rossi, an economist at LCG in Buenos Aires, said, “The government will look at as many alternatives as it can to resolve this issue and keep out of default.”
He said alternatives could be to negotiate a repayment in bonds with the plaintiffs starting in 2015, when a rights upon future offers clause expires. This clause, which expires Dec. 31, allows restructured bondholders to collect anything that is paid to other creditors over the 30 cents on the dollar they received. The government has said could saddle the country with up to $120 billion in additional debt payments.
Rossi said a second alternative is to negotiate with a third party to buy the $1.5 billion in debts from the plaintiffs and negotiate a repayment after 2015.
This has happened in the past. For example, Blue Ridge Capital, a New York-based hedge fund, bought the rights to collect a sentence in favor of a company that sued Argentina in a World Court tribunal for changing its contract for natural gas transmission rates.
“But it doesn’t have much time to structure such a deal by the end of the month,” Rossi said, “It is not easy to do anything when you have a pistol to your head.”
Federico MacDougall, an economist at the University of Belgrano, said negotiating a solution with the plaintiffs is the most viable alternative as long as it does not trigger the rights-upon-future-offers clause, or RUFO. This can be structured with a cash and bond payment after the clause expires.
“The government cannot do anything that would trigger the RUFO or that would push the country to a technical bankruptcy,” he said.
8. ARGENTINA CONTINUES TANGO WITH CREDITORS (CNN Wire)
By Melvin Backman
1 July 2014
Argentina will meet July 7 with its hold-out hedge fund creditors in a last ditch attempt to work something out and avoid default.
NEW YORK (CNNMoney) — Argentina, the Land of Silver, may just avoid further tarnishing.
The nation is on the verge of another default, but Argentine officials plan to meet July 7 with a group of creditors — mostly hedge funds — to try to work something out.
The South American country’s last lapse in payment came in 2001 on $100 billion in debt. It managed over the years to get most of its creditors to take discounted “exchange” bonds at a lesser value, but a small group of “holdout” creditors led by hedge funds NML Capital and Aurelius Capital Management demanded full payment.
Argentina largely ignored them until the U.S. Supreme Court said ruled on June that everyone had to get paid.
The country wants to keeping paying interest to the exchange group and continue rebuilding its bond market credibility, but it can’t do so until it works out a deal with the holdouts. The so-called holdouts were supposed to get $900 million on Monday, but a U.S. judge forbid Argentina from paying one group of creditors and not another.
At the moment, Argentina has a 30-day grace period to sort its problems out with its bondholders.
“Argentina reiterates its call to negotiate on fair, equitable and legal conditions that consider the interests of 100% of creditors, which means that it allows timely charge restructured bondholders to be paid in due course,” the country’s Ministry of the Economy and Public Finance said in a statement.
Jay Newman, a senior portfolio manager at NML parent Elliott Management, was skeptical. After all, two days of talks last week failed to produce an agreement.
“There are no negotiations underway, there have been no negotiations, and Argentina refuses to commit to negotiations in the future,” he said in a statement earlier Monday. “Argentina’s government has chosen to put the country on the brink of default. We sincerely hope it reconsiders this dead-end path.”
9. ARGENTINE HOLDOUT SEES REPSOL, PARIS CLUB DEALS AS MODEL FOR TALKS (Reuters News)
By Daniel Bases and Sarah Marsh
1 July 2014
NEW YORK/BUENOS AIRES, July 1 (Reuters) – Argentina’s past deals to settle claims with Spanish oil major Repsol SA and the Paris Club of creditor nations could serve as examples of how to negotiate a settlement to a decade-old debt dispute, one of the lead holdout bondholders said on Tuesday.
Argentina faces a potential default unless it reaches a deal with holdout investors by July 30 when it must make a payment on its restructured sovereign debt. The holdouts rejected previous restructuring deals Argentina offered after it defaulted on about $100 billion in 2001-2002.
Standard & Poor’s rating agency placed Argentina’s ‘CCC-/C’ unsolicited long- and short-term foreign currency ratings on “CreditWatch” with negative implications on Tuesday, citing likelihood of a default in interest payments.
Jay Newman, senior portfolio manager at Elliott Management, one of the lead holdouts in the sovereign debt dispute with Argentina, told CNBC TV Argentina’s deal with the Paris Club was “important and illustrative” for a possible agreement.
“Argentina recognized after also about the same amount of time we have been dealing with our claims, recognized the total claim of the Paris Club, principal, interest, and penalties,” Newman said.
However, Argentina awarded Repsol only 50 percent of what it had originally demanded for Argentina’s seizure of its YPF subsidiary.
Argentina was ordered by U.S. District Court Judge Thomas Griesa in New York in 2012 to pay the holdouts, led by Elliott Management Corp and Aurelius Capital Management, $1.33 billion plus accrued interest.
Argentina must pay holdouts at the same time it pays investors who accepted swaps in 2005 and 2010. Griesa’s ruling was upheld on appeal and denied a hearing by the U.S. Supreme Court, effectively exhausting Argentina’s U.S. legal recourse.
A deal with the holdouts would be the final element in a campaign by the government to clear up its arrears and allow it to re-enter the international capital markets for desperately needed cash to help fund development, especially the massive Vaca Muerta shale oil and gas field in Patagonia.
The Argentine economy ministry, which said on Monday it would send a delegation to New York next week to meet with a court-appointed mediator, said late on Tuesday the holdouts had asked Griesa in writing to ensure its payments on restructured debt did not reach exchange bondholders.
This was proof, the ministry said in a statement, that the holdouts did not want to “reach a just, equitable and legal solution that respects the interests of 100 percent of creditors.”
DEALMAKER
Economy Minister Axel Kicillof’s deal in February with Repsol ended a two-year dispute and led to the Argentine government issuing $5 billion worth of bonds in compensation.
Those bonds are governed by Argentine law, putting them out of the reach of U.S. courts, and were later sold by JPMorgan with the cash going to Repsol.
Kicillof also settled arrears of nearly $10 billion with the Paris Club by agreeing to make payments in cash installments.
Paris Club rules forbid any reduction in the value of the country’s debt without a program under the auspices of the International Monetary Fund, something Argentina would not accept.
On Monday, Newman complained Argentina had not met with him or the other holdouts. Argentina announced the delegation’s trip to New York several hours later although it has not said if the team would meet face-to-face with the holdouts and has not named its members.
In a statement issued on Tuesday, Mark Brodsky, chairman of Aurelius Capital Management, voiced skepticism.
“I predict Argentina will not send a delegation … next week, or will send one without any authority to depart from the prior exchange offer terms. Either way, Argentina’s government seems determined to plunge the country into a completely avoidable crisis on July 30,” Brodsky said.
Argentina says it cannot voluntarily offer better terms for a restructuring with holdouts because of a provision called the Rights upon Future Offers (RUFO), which expires on Dec. 31. It is designed to stop anyone getting a better deal than the exchange bondholders.
Last week Argentina defied Griesa and made a scheduled coupon payment of $539 million due June 30 (with a 30-day grace period) on restructured bonds, saying it was bound by Argentine law to make the payment.
The money was deposited in the Bank of New York Mellon’s account at the Central Bank of Argentina without making the court-ordered payment to holdout investors at the same time. Griesa said the deposit was illegal and the money should “simply” be returned to the government.
That deposit, made up roughly of $232 million and 225 million euros ($308 million), has not moved from the account because no formal order has been issued by Griesa to return it to the government, sources familiar with the situation said. The sources spoke on condition of anonymity given the unsettled legal matter. One said: “This is a fairly unique situation.”
10. ARGENTINA ECONOMY: QUICK VIEW – ARGENTINA EDGES CLOSER TO DEFAULT (Economist Intelligence Unit – ViewsWire)
1 July 2014
Event
Constrained by a US court ruling that forces it to repay litigant holdout creditors (who did not participate in 2005 or 2010 restructurings) when it makes payments to current creditors, and in the absence of a negotiated repayment deal with the holdouts, Argentina failed on June 30th to meet a coupon payment to holders of restructured bonds issued under New York law.
Analysis
It had become increasingly evident in the days leading up to the June 30th deadline that the payment would not be made. Argentina had transferred the necessary funds to its payments agent in the US, Bank of New York Mellon, during the previous week, asserting that it had therefore met its obligations. However, it was always clear, under the terms of the US court ruling, that the bank would not be able to transfer the funds to the intended creditors without some sort of provision for repayment of the holdouts. In the event, New York judge Thomas Griesa froze the funds, criticised Argentina for attempting to evade compliance with his original ruling and again called on the government to begin negotiations on a repayment plan.
The missed payment is not in itself a major credit event. The major ratings agencies could now downgrade Argentina’s credit rating to “selective default”, but the government still has a 30-day grace period to make its coupon payment before it enters into full-blown default. This does not mean that the dispute has not affected the economy. In fact, sentiment is extremely weak, there has been renewed pressure on the black-market exchange rate, and credit, investment and jobs growth are likely to have all but frozen.
In this already difficult context, a full-blown default on July 30th would in all likelihood prompt a major devaluation and a much deeper recession than we are currently forecasting, putting the political transition at risk. Given these consequences, there is a good chance of a deal with the holdouts. Obstacles remain, however, including clauses in the restructured bonds that allow these creditors to renegotiate if Argentina voluntarily offers other creditors a better deal. Argentina’s aggressive stance in negotiations to date may well be related to a desire to demonstrate that any deal will not be “voluntary”.
 11. ARGENTINA’S INTEREST PAYMENT HANGS IN LIMBO — WSJ BLOG (Dow Jones Institutional News)
By Nicole Hong
1 July 2014
Remember the interest payment Argentina had to pay on Monday? That cash is sitting in limbo right now.
Last Thursday, Argentina tried to get around a U.S. court order by depositing approximately $539 million with Bank of New York Mellon Corp., the amount needed for an interest payment due to its restructured bondholders on Monday. The day after Argentina deposited the cash, a U.S. District Court judge told BNY Mellon to return the money to Argentina, warning that anyone who attempted to make the payment would be in contempt of court.
The money has not yet been returned to Argentina and is still sitting in BNY Mellon’s account, according to two people familiar with the matter. The bank is waiting for a formal court order to send the money back, the people said.
On Monday, BNY Mellon sent a letter to Argentina’s restructured bondholders, explaining why they weren’t getting their interest payments. BNY Mellon has been the so-called “indenture trustee” for Argentina since 2005, meaning it sends payments from Argentina to the country’s restructured bondholders.
U.S. courts have ruled that Argentina is not allowed to pay its restructured bondholders unless it also pays its holdout creditors, which it has not done.
One group of bondholders is particularly upset about all this: the euro bondholders. Of the $539 million due to restructured bondholders on Monday, approximately $308 million were intended for holders of Argentina’s bonds denominated in euros. Lawyers representing euro bondholders have asked the judge to clarify the scope of his ruling, arguing that euro bonds shouldn’t be affected by the ruling because the euro payments never flow through a U.S. bank and are governed by English law, not New York law.
12. ARGENTINE FANS FEEL RIGHT AT HOME (The New York Times)
By Andreas Campomar
2 July 2014
SÃO PAULO, Brazil — Tens of thousands of soccer fans came from all parts of Argentina. It does not matter that there were no tickets left for the match. This seemed an irrelevance. The main thing was to have been here, and to have witnessed Argentina take on Switzerland.
In a sliver of park overshadowed by the modern office buildings of downtown São Paulo, FIFA has installed large screens for those without tickets. The fans know that tickets were going for between $2,000 and $3,000. Not that there were any for sale. Those who had come from the Arena Corinthians complain that there are only buyers and no sellers.
Even two hours before the match started, the Argentines appeared en masse with their flags of light blue and white. The striped albiceleste shirts are ubiquitous; even children in strollers were wearing them.
The drinking started early. One fan, while being frisked at the turnstile, shouted: ”Today, we’re all brothers. Boca-River, it doesn’t matter.” He was referring to the rival clubs River Plate and Boca Juniors.
The Argentines came here with a spring in their step, despite the long journey. Victory on Tuesday against Switzerland — a country perceived to be without a soccer pedigree — was assumed. Now, with only Belgium to beat, Argentina’s path to the semifinals seemed assured.
Between the waves of the blue-and-white-striped shirts, a handful of Switzerland supporters were singled out as exotic creatures worth having their picture taken. The Swiss were realistic but hopeful. ”Germany wa nearly beaten yesterday, so there’s a small chance we might win,” said Lukas Schuler of Zurich. ”I would have gone to the match, but the Argentines have bought all the tickets.”
The Argentines were all smiles. Brazil seems to bring out the best in the visiting fans. For many it was as much about the soccer — though they were here to see Argentina win — as about friendship.
Diego Nazar-Dobson, Mariano Rosas and Andrés Rodríguez made the trip from Mendoza, Argentina. ”This is about fun, about friends going off on a trip together,” Nazar-Dobson said. ”The Brazilians have been very welcoming. We’re a soccer-mad country, so are they. And they do have the best soccer in the world.”
For Fernando Giménez, a Deportivo Morón fan from the Hurlingham section of Buenos Aires, the trip has taken him 40 hours by car. ”I could have watched the match relaxed at home,” he said, ”but it is the passion of the game that has brought me here.”
There are soccer colors on show from Colombia, Uruguay, Peru, Mexico and even Venezuela. This World Cup has become a tournament not just for Brazil but also for all South Americans. Not since the 1978 World Cup was played in Argentina has geographical proximity allowed average fans the opportunity to travel.
As Pelé’s smiling face was caught on camera, the whistles and boos rang out. There is only one god allowed, and it is Diego Maradona and his No. 10 shirt.
For all the violence inherent in Argentine soccer — not least the barbarities that ensue between rival clubs — it was peaceful here. Marcelo Chumacero, a River Plate supporter, was surrounded by Boca fans. ”We’re all Argentines here, there’s nothing to worry about.” He stops himself. ”But at home of course not.”
The game was not watched with the usual rowdiness, but in a studied fashion. With the match scoreless at halftime, the Argentines were unusually quiet. Rather than berate their own, the supporters criticized the defensiveness of the Swiss. Messi had not been allowed to play. The beer continued to flow. A news team was trying to get the attention of a person with the map of the Falkland Islands on his back. There were two Argentine flags underneath.
As the soccer spectacle drained out of the match at the end of the second half, reality intruded. Seven Brazilian youths are lined up against a partition by the police and searched. Some spectators turned from the giant screen to take photographs.
In the dying minutes of the match, di María scored to take Argentina through. A fan fell to his knees and kissed his blue and white bag. The Argentines who had been quiet began to chant. Shirts swung in the late afternoon sun. For those who have spent two days in their cars, it was a relief. The match nearly offered a final twist with a Swiss free kick just outside the Argentine penalty area. The whistle blew and the crowd roared.
”I drove through the night,” said a fan from Santa Fé, Argentina. ”I haven’t slept since yesterday. But it was worth it.”
13. ARGENTINA SEEN BACKTRACKING ON FERNANDEZ VOWS AS LEGACY AT RISK (Bloomberg News)
By Charlie Devereux
July 1, 2014
Argentina’s President Cristina Fernandez de Kirchner has less than a month to choose between two unpalatable options: fulfilling a vow never to pay off creditor hedge funds, or negotiating with them to avoid a rerun of the 2001 debt crisis that forced a predecessor to flee the presidential palace in a helicopter.
With the economy contracting and foreign currency reserves near an eight-year low, she is likely to decide that a deal to pay off the $1.5 billion the funds are demanding is the least bad choice, said Claudio Loser, the head of research firm Centennial Group Latin America.
“A catastrophic situation in the economy would be worse” for Fernandez than any backtracking on her promises, Loser, a former International Monetary Fund director, said by phone from Washington. The government “is very fearful that they could be kicked out or the last year of their term is a disaster.”
Fernandez has already moved to regain access to global credit markets for the first time since the 2001 default. Since October, she has settled arbitration cases at the World Bank, paid Spanish oil company Repsol SA for the expropriation of YPF SA and negotiated with the Paris Club of creditor nations. Now she must go the final yard and negotiate with hedge funds she calls “vultures,” Loser said.
A failure to reach an accord would drain reserves that have tumbled 21 percent in the past year to $29 billion. Success would allow Fernandez to resume borrowing and spending as the fiscal deficit widens to about 6 percent of gross domestic product, or $21 billion, this year, said Dante Sica, director of Buenos Aires-based consulting firm Abeceb.com.
Freedom Margin
While the economic consequences of defaulting wouldn’t bring an economic crisis as severe as the one in 2001, they would bring further pressure on the peso and reserves, said Mauro Roca, a senior Latin America economist at Goldman Sachs Group Inc.
“It would give the government less margin of freedom in their domestic agenda which is pretty complicated,” Roca said in a phone interview from New York.
Economy Ministry spokeswoman Jesica Rey didn’t reply to a voice message and e-mail seeking comment about the possible consequences of not reaching an agreement with the holdouts.
U.S. District Court Judge Thomas Griesa last month blocked Argentina from paying interest on its bonds unless it also pays holdouts from two bond restructurings, led by billionaire Paul Singer’s NML Capital. That meant Argentina missed an interest payment on June 30, leaving it with 30 days to reach an accord or default for the second time in 13 years.
2001 Crisis
The government said June 30 that it will send a delegation July 7 to New York to meet with court-appointed mediator Daniel Pollack.
The litigation dates back to 2001 when former President Fernando De la Rua restricted cash withdrawals from banks to avoid a collapse of the financial system, sparking riots that left dozens dead. De la Rua resigned and was airlifted out of the presidential palace to avoid protesters. A week later, Argentina announced it would default on $95 billion of debt.
Fernandez’s husband and predecessor, Nestor Kirchner, took power in 2003 and negotiated a restructuring two years later in which investors accepted a 70 percent reduction. With a second round in 2010, Argentina was able to restructure 92 percent of the debt.
Fernandez described last month’s court ruling as “extortion,” and warned that it would open the country to as much as $15 billion in claims from other holdouts on June 16. Four days later said she would negotiate as long as it is under conditions that respect the country’s constitution.
“We are ready to carry out our duties,” Fernandez said June 20.
Hands Tied
The government has its hands tied, said Diego Giacomini, an economist at Buenos Aires-based Economia y Regiones.
Not abiding by the court ruling would force Argentina into a default that would stoke inflation estimated at 40 percent, drive away investment and cause an already contracting economy to shrink further, he said.
The country needs between $13 billion and $17 billion in credit “to get to the end of 2015 without losing too many reserves and without having to devalue the currency too significantly,” Giacomini said in a phone interview.
IMF ‘Dictatorship’
Nestor Kirchner, who died in 2010, blamed the IMF “dictatorship” for supporting a fixed exchange rate and enforcing spending cuts that led the country into the 2001 economic crisis. Now, his wife is seeking to repair relations with the Washington-based lender. The government this year overhauled its consumer price and gross domestic product indexes after the IMF censured Argentina for misreporting its economic data.
Argentina has also settled about $500 million of debt with five companies that had won rulings at the World Bank’s arbitration court, compensated Repsol and agreed to pay the Paris Club of creditors $9.7 billion of defaulted debt.
Negotiating with the holdouts is “the last conflict left to resolve to regain access to international markets,” Sica said. “Financing allows you to kick the can down the road.”
While the $15 billion it still owes holdouts is more than half of reserves, Argentina has the capacity to pay if Fernandez is allowed to pay in bonds, Roca said.
Standing Firm
Fernandez called on her supporters last month to unify in their fight against the hedge funds.
“One of the things we won’t negotiate on is to hand over this country to vultures that want to tear it to pieces,” Fernandez said last month.
Former Economy Minister Hernan Lorenzino said in October 2012 that the government wouldn’t settle with the holdouts.
“We’ll never pay the vulture funds,” Lorenzino posted on his Twitter account. “Whoever thinks otherwise hasn’t understood a thing.”
With debt payments looming, the budget deficit widening and reserves shrinking, the time has come to backtrack, said Manuel Mora y Araujo, a Buenos Aires-based political analyst. Negotiating with the funds is preferable to the prospect of having the country’s foreign assets seized following a default, he said.
It would not the first time that Fernandez has been forced to backtrack. After vowing never to devalue, Fernandez allowed the peso to tumble 19 percent against the dollar in January, the most since Argentina abandoned the one-to-one peg with the U.S. dollar in the wake of the 2001 default.
Protests over week-long blackouts and a wave of looting following police strikes for higher wages in December were a reminder for Fernandez of how quickly control can unravel in Argentina.
“They have no choice,” Loser said. “They could say they’re not paying but the consequences would be very, very bad. Fernandez doesn’t want to go out like De La Rua.”
14. ARGENTINE BONDS SNAP LOSING STREAK ON DEBT MEDIATOR TALKS (Bloomberg News)
By Camila Russo and Katia Porzecanski
July 1, 2014
Argentine bonds rallied, snapping a three-day losing streak, after the government set a date to begin talks with a court-appointed mediator in its conflict with holdout creditors that threatens to cause a default.
Government bonds due 2033 rose 2.2 cents to 85.40 cents on the dollar at 10:34 a.m. in Buenos Aires, pushing the yield down 0.34 percentage point to 10.24 percent, according to data compiled by Bloomberg. The extra yield investors demand to hold Argentine debt over U.S. Treasuries narrowed 0.31 percentage point, the most in emerging markets, to 6.93 percentage points, according to JPMorgan Chase & Co.’s EMBIG index.
Since President Cristina Fernandez de Kirchner said June 20 she would seek a negotiated solution to the conflict with creditors holding defaulted bonds from the nation’s 2001 economic crisis, her government published advertisements in the New York Times and Financial Times vilifying a U.S. judge for his ruling that blocked the nation from making a $539 million payment on the 2033 debt. The Economy Ministry said late yesterday it will send a delegation to meet with the mediator Daniel Pollack, known as the Special Master, on July 7, hours after holdouts NML Capital Ltd. said no talks had begun.
“The government’s public strategy remains confrontational at times, but we think that much of this is driven by political concerns and attempts to improve its negotiating position,” Casey Reckman, an economist at Credit Suisse Group AG wrote in a note today. “Meeting with the Special Master is an important step in the rational direction.”
Facing a U.S. court order that prohibits it from servicing current bonds until defaulted debtholders are paid, Argentina has to reach a deal by July 30, the date that the grace period on the interest payment expires.
Argentine Delegation
“The Economy Ministry has designated a delegation to meet with the official on July 7,” according to the statement. “Argentina reiterates its willingness to negotiate in fair, equal and legal conditions that contemplate the interests of all creditors which means allowing restructured bondholders to receive their due payment.”
A clause in Argentina’s restructured bonds, which expires Dec. 31, prevents the nation from voluntarily making a better offer to holdouts without making the same offer to exchange bondholders.
Elliott Management Corp., the hedge fund controlled by billionaire Paul Singer that is leading litigation for a group of holdouts through its NML unit, said yesterday Argentina’s assertion that it’s willing to negotiate is a “broken promise.”
Default Protection
Last week the Fernandez administration deposited $539 million to make a June 30 interest payment on bonds that were issued in restructurings following the country’s 2001 default. U.S. District Court Judge Thomas Griesa the next day called the move “illegal’ and a ‘‘disruption’’ to talks. He blocked the payment and urged the parties to reach a settlement.
Aurelius Capital Management LP, which is also demanding payment for defaulted bonds, said in a statement that the country ‘‘refuses even to meet.’’
Jesica Rey, an Economy Ministry spokeswoman, didn’t respond to an e-mail seeking comment.
It costs $3.7 million in advance and $500,000 a year to insure $10 million of debt against default for five years with credit default swaps, according to CMA. That’s the highest in the world.
Argentina has $28.7 billion of international dollar bonds outstanding.
‘Ranting, Raving’
‘‘They’re obviously trying to make as much noise as possible,” said Julian Adams, who manages $75 million in emerging-market bonds, including Argentina’s 2033 bonds, at Adelante Asset Management Ltd. in London. “If they are realistic about it they can reach a deal. If they carry on ranting and raving and ignoring U.S. law, which is what they have been doing for the past couple of days, they will get nowhere.”
The case stems from the country’s 2001 default on a record $95 billion. While Argentina was able to restructure 92 percent of the debt in 2005 and 2010, the rest of creditors refused to take losses of about 70 percent, a restructuring that Fernandez calls the harshest for sovereign creditors in history.
The U.S. Supreme Court on June 16 left intact a lower court ruling that Argentina can’t make payments on the restructured bonds without also paying $1.5 billion to holders of the defaulted bonds. Argentina says if it complies with the ruling, it would be subject to $15 billion of similar claims, or more than half of the nation’s international reserves.
Economy Minister Axel Kicillof at one point said the country was studying plans to skirt the ruling with a debt swap into local law instead of New York law.
Creditor Settlements
Since October, Argentina has settled claims with five companies in the World Bank’s arbitration arm, reached an agreement with the Paris Club group of creditor nations and compensated Spanish oil producer Repsol SA for the takeover of YPF SA. Those moves aimed to burnish the country’s standing with global capital markets. Argentina also improved its economic data reporting after being censured by the International Monetary Fund.
A settlement with holdout creditors would be the last major obstacle to accessing international financing.
NML said June 24 that if there’s “good progress” in the talks, it may support a way for Argentina to pay the bonds by July 30. Pollack, the special master, said last week there had been no progress.
Edwin Gutierrez, who helps oversee $13 billion at Aberdeen Asset Management Plc, including Argentine bonds, said the government and holdouts probably will reach a deal as the end of the grace period draws near.
“This gets resolved but it gets resolved on July 30, and anyone who expected this to happen tomorrow or yesterday were being naive,” Gutierrez said in a telephone interview from London. “They’ll have to pay Elliott. There’s no way around it.”
15. ARGENTINA VS. BILLIONAIRE PAUL SINGER’S ELLIOTT MANAGEMENT: WHO HAS THE UPPER HAND? (Forbes)
By Agustino Fontevecchia
July 1, 2014
The Argentine government and Elliott Management, the hedge fund run by billionaire Paul Singer, are playing a deadly game of poker where both sides are vying for an upper hand.  In a court battle that has lasted over ten years, the so-called vulture funds have the advantage of several court decisions in their favor, while the administration of President Cristina Kirchner can rely on the nuclear option, a threat of default, to extract concessions.  In reality, both sides have been dealt a weak hand and are looking to bluff their way out of it.  Ultimately, the best both of them can hope for is for the other to act rationally to arrive at a compromise that is truly mutually beneficial.
“Default will be the dead end,” said Jay Newman, senior portfolio manager at Elliott Management, on Tuesday in a television interview with CNBC.  The soft spoken hedge funder reiterated their position once again: we are willing to negotiate with the Argentine government, but not on your terms.  Elliott has led the charge, along with Auerlius Capital and Blue Angels, against the South American nation over one of history’s largest ever sovereign debt restructurings.
After a massive default toward the end of 2001 that some put around $100 billion, Buenos Aires unilaterally offered defaulted creditors a new bond that included a 70% haircut.  In their two offers, in 2005 and 2010, they managed to get more than 92% on board.  Elliott Management,  which the Argentine government accuses of buying their bonds at a deep discount (paying $48.7 million for bonds worth $832 million at face value, or 6 cents on the dollar if you believe the figures), decided to fight in court.
With rulings from Judge Griesa, the Second Circuit Court, and the refusal from the Supreme Court to take the case, Elliott effectively won that battle. They are to be paid in full, which comes out to about $1.3 billion when all the other plaintiffs are added up, before exchange bondholders can receive payment.
In reality, things are fuzzier.  The reason Elliott hasn’t really won is that it is impossible for Argentina to pay them in full, as that would move the remaining holdouts to litigate, and probably get judgments, against Argentina.  The claims would rise to about $15 billion, Finance Minister Axel Kicillof argued, and that would unravel the whole restructuring, with claims reaching $120 billion if his figures are to be believed.
But Elliott has won in that Argentina’s government, which has systematically refused to negotiate, has been forced to the discussion table.  After sending mixed messages over the past two weeks, the Finance Ministry confirmed a delegation will travel to New York next week to meet a Special Master designated by Judge Griesa, Daniel Pollack, to begin conversations.  Having missed a June 30 bond payment, Argentina has a 30-day grace period before entering into selective default, which is the absolute worst scenario for everyone involved.
Game theory suggests that in these prisoner’s dilemma situations, the best possible outcome, named Nash Equilibrium, is where both parties give up some of their potential gain in order to maximize joint payout.  Assuming both are rational actors, the optimum solution would be for Elliott Management to lower its pretensions of full payment (which it has hinted at) and for Argentina to offer something higher than 30 cents on the dollar (which Newman called “derisory”).
It’s now Argentina’s move.  Newman indicated that sending an unnamed delegation of low ranking officials to meet with the mediator, rather than face to face with the holdouts, is the wrong way to start.  He is right.  Cristina Kirchner would do well to send her highest ranking economic official, Finance Minister Axel Kicillof, with a proposal that is similar to recent settlements with the Paris Club and Spanish energy company Repsol, where a payment plan consisting of bonds and cash was used.  “We are pretty flexible [about payment options],” Newman said, adding the Repsol and Paris Club settlements were good models for a potential solution.
The biggest obstacle, beyond the political bickering that Cristina Kirchner has used to rally her base back home, is the Rights Upon Future Offers clause, or RUFO. By contract, Argentina can’t offer holdouts better terms than those offered in the previous restructurings, which the holdouts have already rejected. The key is that this clause expires with 2014.  A good faith negotiation could push Judge Griesa to reinstate a stay that would allow the South Americans to avoid default, while preparing a palatable payment plan for next year.
Importantly, this will also depend on Elliott Management, and their pretensions.  Cristina Kirchner is right in noting that vulture funds buy defaulted bonds and then force payment, generally putting pressure on highly indebted and impoverished countries. Argentina has recovered from the mega default of 2001, but the economy is still weak and inflation is rampant.  Foreign reserves have dwindled and currently stand below $30 billion.  Expecting full payment in this situation is unreasonable.
 

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MONDAY, JUNE 30TH
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. ARGENTINA VS. BONDHOLDERS: THE EPIC SAGA (The Wall Street Journal Blog)
June 30, 2014
The U.S. Supreme Court’s rejection this month of Argentina’s appeal in its fight with a group of bondholders caps a years-long court battle.
The saga started when Argentina declared a moratorium on its debt payments in December 2001 amid the worst economic and social crisis in its modern history. That triggered what at the time was the largest sovereign default ever, involving some $100 billion.
The Argentine government managed to restructure about 93% of that debt through heavily discounted bond exchanges in 2005 and 2010. But a small group of investors refused to tender their defaulted bonds for new securities, and they have hounded Argentina in courts across the globe for close to a decade seeking full repayment.
In February 2012, a group of the holdouts, led by units of New York hedge funds Elliot Management and Aurelius Capital, won a landmark decision in a U.S. District Court. The case has wended its way through the appeals process for years. Earlier this month, the Supreme Court refused to hear Argentina’s last appeal. The court rulings give Argentina a choice: Pay the holdout creditors, or default on its current bonds.
Key developments in the case:
Feb. 23, 2012 – New York District Court Judge Thomas Griesa orders an injunction barring Argentina from making payments to holders of the restructured, or exchanged, bonds if it doesn’t also make “equal treatment” payments to a group of litigant holdout creditors led by Elliott Management and Aurelius Capital.
March 5, 2012 – Judge Griesa issues a stay on the injunction pending an appeal. This buys time for Argentina, allowing it to keep paying exchange bondholders without paying the holdouts.
Oct. 26, 2012 – The Second Circuit Court of Appeals in New York largely upholds the District Court decision on equal treatment and endorses the injunction on payments.
Nov. 28, 2012 – The appeals court reissues the stay, allowing Argentina to continue payments to exchange bondholders until a final ruling on appeal is reached.
March 1, 2013 – The appeals court orders the Argentine government to submit a proposal for paying the holdouts by March 29. In Buenos Aires, President Cristina Kirchner for the first time says her government is willing to make payments but only at a level consistent with prior debt exchanges.
March 29, 2013 – One hour before a midnight deadline, Argentina unveils a proposal for paying holdout creditors. The offering is similar to previous debt exchanges and valued by analysts at far below the holdouts’ total claim.
April 20, 2013 – Holdout creditors reject Argentina’s proposal to pay them about 20 cents on every U.S. dollar of bonds they own, leaving a U.S. appeals court to decide whether Argentina’s proposal complies with the lower-court ruling that holdout creditors must be treated the same as investors who hold its restructured bonds..
Aug. 23, 2013 – The Second Circuit Court of Appeals says Argentina’s offer to holdout creditors wasn’t enough and reiterates that if Buenos Aires pays exchange bondholders, it must also pay holdout bondholders 100% of what they are owed. However, the appeals court keeps a stay on the ruling in place while the U.S. Supreme Court decides whether to review the case.
Oct. 7, 2013 – The U.S. Supreme court declines to hear Argentina’s appeal. However, Buenos Aires will have another opportunity to petition the Supreme Court because its appeal to the Second Circuit Court to reconsider its decision is still pending.
Nov. 18, 2013 – The Second Circuit Court rejects Argentina’s request that it reconsider its earlier decision. The request had faced long odds because appeals courts don’t routinely reconsider their decisions.
Feb. 19, 2014 – Argentina again appeals to the Supreme Court, asking it to reverse the lower-court rulings. Lawyers for the Argentine government argue that it deserves a chance to explain why lower courts have misinterpreted a clause in defaulted bonds and trampled on the country’s sovereign immunity.
June 16, 2014 – The U.S. Supreme Court rejects Argentina’s appeal.
June 17, 2014 – Argentina’s Economy Minister proposes debt swap that would put some restructured bonds under Argentine law.
June 18, 2014 – Argentina says it will negotiate with holdouts in New York. Judge Griesa says a debt swap would violate his ruling.
June 23, 2014 – Daniel Pollack, a lawyer with McCarter & English, appointed special master overseeing talks between Argentina and the holdouts.
June 26, 2014 – Judge Griesa denies Argentina’s request to stay his ruling to give the country more time to reach a deal. Argentina deposits $539 million with Bank of New York Mellon Corp. for its next payment to bondholders.
June 27,2014 – Judge Griesa tells Bank of New York to return Argentina’s money, says a deal is unlikely before payment is due.
June 30, 2014 – Argentina’s payment to restructured bondholders is due. Failure to pay starts a 30-day grace period before the country defaults.
2. ARGENTINE DEBT TEAM TO MEET WITH MEDIATOR: NATION HAS 30-DAY GRACE PERIOD TO AVOID ITS SECOND DEFAULT IN 13 YEARS (The Wall Street Journal Online)
By Ken Parks and Nicole Hong
June 30, 2014
BUENOS AIRES—Argentina said Monday night that it will send a delegation to meet with a court-appointed lawyer on July 7 as it tries to resolve a dispute with a small group of creditors that could see the South American country default for a second time in 13 years.
Argentina’s long-running battle with hedge funds in U.S. courts entered a critical phase after U.S. District Judge Thomas Griesa on June 27 blocked the country from making $539 million in interest payments that were due on some of its bonds Monday.
Argentina will likely default if it can’t get that money to bondholders before a 30-day grace period expires in July. The judge has ruled that Argentina must pay the hedge funds that are suing to collect on defaulted bonds at the same time it pays investors who own bonds the country issued after its 2001 default.
Monday’s announcement marks the first time that Argentine officials are set to meet with Daniel Pollack, the New York attorney Judge Griesa named last week to oversee negotiations between the two sides.
Argentina’s Economy Ministry said it intends “to negotiate in fair, equitable and legal conditions that take into account the interests of 100% of its creditors.”
The news comes shortly after one of the holdout creditors, Elliot Management Corp., said that the country has refused to negotiate any aspect of the dispute. There have been no negotiations and no negotiations are under way, Elliot said.
Attorneys for both parties participated in conference calls hosted by Mr. Pollack on Friday and Saturday that apparently made little progress. Those calls followed a visit to New York last Thursday by Economy Minister Axel Kicillof, who spoke at the United Nations about Argentina’s fight with the hedge funds before boarding a return flight to Argentina.
Argentina defaulted on about $100 billion of its debt during an economic crisis in 2001. The country in 2005 and 2010 offered holders of the defaulted bonds new, heavily discounted debt in exchange. Between the two swaps, investors agreed to exchange almost 93% of the defaulted bonds.
However, hedge funds led by Elliott’s affiliate NML Capital Ltd. and Aurelius Capital Management LP decided not to tender their bonds and instead sued for full repayment. So far, they have won about $1.5 billion in the courts after years of litigation.
Argentine officials have refused to pay the holdouts in full, arguing that a settlement would trigger billions of dollars in claims by other creditors and bankrupt the country. Argentina has virtually run out of legal options to appeal the ruling after the U.S. Supreme Court on June 16 denied its appeal and left in place Judge Griesa’s decision that Argentina must treat its different groups of creditors equally.
President Cristina Kirchner’s government has accused Mr. Griesa of favoring the holdout creditors and trying to push the country into default.
Jorge Capitanich, Mrs. Kirchner’s cabinet chief, said earlier Monday that Argentina might put its grievances before unnamed international organizations.
Shane Romig contributed to this article.
3. ELLIOTT SAYS NO NEGOTIATIONS UNDERWAY WITH ARGENTINA (The Wall Street Journal Online)
By Nicole Hong and Ken Parks
June 30, 2014
Elliott Management Said Argentina Has “Refused To Negotiate Any Aspect Of This Dispute.”
No negotiations are under way between Argentina and its holdout creditors, one of the creditors said Monday.
In an emailed statement, Elliott Management Corp. said Argentina has “refused to negotiate any aspect of this dispute,” adding that there have been no negotiations and no negotiations are under way. Elliott Management Corp.’s NML Capital Ltd. is one of a small group of hedge funds who have refused Argentina’s restructuring offers since its 2001 default and have sued Argentina for full payment.
Argentina must negotiate a settlement with holdouts to avoid its second default in 13 years as U.S. court rulings have said Argentina can only pay its restructured bondholders if it pays the holdout creditors at the same time. Because of this, Argentina is expected to miss an interest payment on its restructured bonds Monday. The country now has a 30-day grace period to make up the payment and avoid a full-blown default.
“Argentina’s government has chosen to put the country on the brink of default,” said Jay Newman, senior portfolio manager at Elliott Management. “We sincerely hope it reconsiders this dead-end path.”
Argentina’s Economy Ministry declined to comment on the statement. Lawyers representing Argentina at Cleary Gottlieb Steen & Hamilton LLP also declined to comment.
Last week, the U.S. District Court appointed an attorney, Daniel Pollack, to conduct negotiations between Argentina and the holdouts.Attorneys for both parties participated in a conference call hosted by Mr. Pollack on Friday and Saturday afternoon, according to a person briefed on the matter. In both cases, Argentina’s lawyers insisted on the reinstatement of the stay, which would postpone the enforcement of the U.S. court order, as a condition for starting negotiations, the person said.
Argentina’s lawyers already requested a reinstatement of the stay on June 23, a request that the U.S. District Court denied three days later.
4. THE SHORT ANSWER: WHAT TO KNOW ON ARGENTINA’S DEBT STANDOFF (The Wall Street Journal Blog)
June 30, 2014
Argentina is on track to miss an interest payment on Monday, setting in motion a 30-day grace period for the country to make the payment and avoid its second default in 13 years.
Why is Argentina missing an interest payment?
Argentina is expected to miss at least $500 million in interest payments on some of its restructured bonds Monday. This is because U.S. courts have said Argentina is not allowed to pay its restructured bondholders unless it pays a small group of hedge funds, known as the holdout creditors, at the same time. These holdouts have refused to accept Argentina’s restructuring offers from its default in 2001. Since Argentina has not yet paid the holdouts, it’s not allowed to make the interest payment on Monday.
Does that mean Argentina is in default?
Not yet. Argentina has a 30-day grace period to make up the interest payment and avoid another default. In other words, Argentina now has the month of July to reach some settlement with the holdouts. However, Standard & Poor’s Ratings Services or Fitch Ratings could downgrade Argentina to “selective” or “restricted” default anytime in the next month, depending on how negotiations are going. Moody’s Investors Service does not have a default rating.
Why can’t Argentina just ignore U.S. courts and send the payment to restructured bondholders?
Argentina tried to do this last week by depositing more than $500 million with Bank of New York Mellon, which sends payments from Argentina to its restructured bondholders. However, BNY Mellon would be violating U.S. court order if it sent the payments. A federal judge on Friday explicitly told BNY Mellon to return the money to Argentina.
Why won’t Argentina just pay the holdouts?
Argentina has argued that paying the holdouts, which are owed around $1.5 billion in this specific case, would open the door to an avalanche of other creditor claims. Argentina has said these claims could exceed $120 billion; some analysts estimate this figure could be much lower. Argentina has repeatedly called the holdouts “vultures” and likened their efforts to “extortion,” saying that creditors scooped up Argentina’s bonds at a cheap price and are now demanding full payment for them.
What next?
Everyone is now waiting to see whether Argentina and the holdouts can strike a deal by the end of the grace period on July 30. The U.S. District Court has appointed a lawyer to conduct negotiations, but one of the holdouts, Elliott Management Corp.’s NML Capital Ltd., said in a statement Monday that no negotiations are underway and that Argentina has refused to negotiate. Argentina’s economy minister and lawyers declined to comment on that statement.
5. ARGENTINA FACES A DEADLINE FOR HEDGE FUND PAYMENTS (The New York Times)
By Peter Eavis
July 1, 2014
Argentina’s government has 30 days to decide whether it should try to make peace with a group of New York hedge funds that it has bitterly fought for years in a dispute that could change the global market for government bonds.
The hedge funds, after a series of important victories in United States courts, have managed to back Argentina into a daunting legal corner. Judge Thomas P. Griesa of the Federal District Court in Manhattan has told the country that it cannot make payments on its main class of foreign bonds without also paying the defaulted bonds that the hedge funds hold.
Argentina was scheduled to make a payment to its main bondholders on Monday. The country had put $539 million in the Bank of New York Mellon, but the bank, not wanting to violate the court order, had said that it would not pass on the money to the bondholders.
The bonds now have a 30-day grace period in which late payments can be made. In that period, Argentina may decide to compromise with the hedge funds, known as holdouts, or take drastic measures, including an outright default on its main foreign bonds. A default could further weaken Argentina’s fragile economy.
“Huge financial matters have been resolved, or at least the foundations have been accomplished, in 30 days,” said Henry Weisburg, a partner at Shearman & Sterling who has written frequently on the Argentine case. “But it probably looks grim.”
Last week, Judge Griesa appointed a special master to oversee negotiations between the hedge funds and Argentina. But Argentina is not engaging, according to Elliott Management, a leading holdout firm. “There are no negotiations underway, there have been no negotiations,” Jay Newman, a senior portfolio manager at Elliott, said in a statement on Monday. Late on Monday, Argentina’s Ministry of the Economy said that the country intended to meet with the special master on July 7.
A victory for the holdouts, according to some legal specialists, could give bondholders significantly more power when they negotiate with countries that want to cut their debt load after a default. Other legal experts, however, say that recent changes to bonds make it harder for holdouts to exert pressure. And the supporters of the holdouts say that countries that issue bonds under New York law should be held accountable to that law.
Argentina ran out of legal options after the United States Supreme Court declined to take up the case in the middle of June. During its legal battles, Argentina’s president, Cristina Fernández de Kirchner, has called the holdouts “vultures.” Argentina is refusing to pay the hedge funds’ bonds because they were not included in the bond exchanges that slashed the country’s debt load after its huge 2001 default. The bonds issued in the exchanges now make up the main class of Argentina’s foreign bonds, and the country had been paying them without hitch — until Monday.
Some legal experts said that there was still a chance that a settlement could be reached.
Although Argentina’s government has vowed it will not submit to the holdouts’ demands, it can now say to the Argentine people that it has no choice but to pay after taking its fight to the highest American court. On the other side, the holdouts may decide to concede some ground if Argentina proposes a sufficiently high payment. “The holdouts are not irrational,” said Marco E. Schnabl, a partner at Skadden, Arps, Slate, Meagher & Flom who has closely followed the case. “They are not in the business of a vendetta against Argentina. They are in the business of making money.”
An agreement, if it starts to coalesce, may take more than 30 days. But if the special master says that the talks are making real progress, Judge Griesa may decide to temporarily lift his order against Argentina, giving negotiations more time. But the holdouts will want assurances that such a “stay” will not be used by Argentina to its advantage. Lawyers for Elliott Management asserted last week in a letter to Judge Griesa that they would want compensation, if a stay was granted.
Argentina could allow a default at the end of July. The holdouts, seeing that the government has gone to such lengths, might then decide to soften their stance. Alternatively, the holdouts may hold firm until next year to see if the next Argentine government is less combative.
Argentina may also use the next 30 days to plan a bold move in which it offers to swap its main class of bonds into securities issued out of Argentina and away from Judge Griesa’s court. But the holders of the bonds may not want to agree to such an exchange. And such a swap would most likely require the cooperation of foreign financial firms that would not want to participate in any maneuver that could fall afoul of Judge Griesa. Argentina, for instance, would need to know exactly who held its bonds, and the institutions that have that information may decline to provide it to the country. “There is no way they are turning that over without the court’s O.K.,” Mr. Weisburg said. “You couldn’t do a conventional exchange offer.”
6. ARGENTINA LIKELY TO MISS PAYMENT COSMETICS (The Washington Post)
1 July 2014
Argentina was likely to miss a bond payment Monday, setting it on a course for a possible catastrophic default.
Argentina owes an interest payment to the majority of its creditors, but the government has a 30-day grace period to avoid going into its second default in 13 years.
The U.S. Supreme Court recently turned down Argentina’s attempt to block a lower court ruling that it must pay hedge funds that own bonds left over from its record $100 billion default in 2001.
U.S. District Judge Thomas Griesa urged Argentina on Friday to continue negotiating with the funds that refused to participate in debt swaps in 2005 and 2010. The judge also said it would be illegal for Argentina to make a payment to the majority of its bondholders without also paying more than $1.5 billion to the holdouts.
Griesa appointed a special master last week to facilitate talks because Argentina indicated through its lawyers that it planned to negotiate for the first time with the U.S. bondholders, led by New York billionaire Paul Singer’s NML Capital.
The holdout creditors accused Argentina on Monday of refusing to begin talks.
“There are no negotiations underway, there have been no negotiations, and Argentina refuses to commit to negotiations in the future,” Elliott Management, which runs NML, said in a statement. “Argentina’s government has chosen to put the country on the brink of default. We sincerely hope it reconsiders this dead-end path.”
Later Monday, Argentina’s economy ministry issued a statement saying it would send a delegation to New York to meet with the debt negotiation mediator on July 7.
7. ARGENTINA HITS DEBT DEADLINE, BUT NOT YET DEFAULT (ABCNews.com)
Jun 30, 2014
Argentina will likely miss a bond payment on Monday, setting it on a course for a possible catastrophic default.
Argentina owes an interest payment to the majority of its creditors, but the government has a 30-day grace period after Monday to avoid going into its second default in 13 years.
The U.S. Supreme Court recently turned down Argentina’s attempt to block a lower court ruling that it must pay hedge funds that own bonds left over from its record $100 billion default in 2001.
U.S. District Judge Thomas Griesa urged Argentina on Friday to continue negotiating with the funds that refused to participate in debt swaps in 2005 and 2010. The judge also said it would be illegal for Argentina to make a payment to the majority of its bondholders without also paying more than $1.5 billion to the holdouts.
Griesa appointed a special master last week to facilitate talks because Argentina indicated through its lawyers that it planned to negotiate for the first time with the U.S. bondholders.
President Cristina Fernandez has long refused to negotiate with the plaintiffs led by New York billionaire Paul Singer’s NML Capital Ltd., who spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief. But Fernandez has been backed into a corner by NML Capital’s payment plan.
The holdout creditors accused Argentina on Monday of refusing to begin talks.
“Argentina’s professed willingness to negotiate with its creditors has proven to be just another broken promise. NML is at the table, ready to talk, but Argentina has refused to negotiate any aspect of this dispute,” Elliott Management, which runs NML said in a statement.
“There are no negotiations underway, there have been no negotiations, and Argentina refuses to commit to negotiations in the future. Argentina’s government has chosen to put the country on the brink of default. We sincerely hope it reconsiders this dead-end path.”
Paying the hedge funds that she often calls “vultures” in full would likely trigger lawsuits from other bondholders demanding to be paid on similar terms. Argentina’s government estimates that the liability could run up to $15 billion.
With nearly $29 billion in foreign reserves, Argentina appears to have the money to pay its bills. But those reserves include loans to other countries, deposits with the IMF and other assets that aren’t easily used. Take those away, and Argentina has roughly $16 billion on hand.
Troubled countries often find bond investors willing to lend to them to pay other creditors. But Argentina has been locked out of the bond markets for more than a decade. Some investors would probably step up to lend it money, but at high interest rates — and at high political cost for the leftist government.
Fernandez and her husband, the late President Nestor Kirchner, have used much of the Central Bank’s reserves to pay down Argentina’s debts, provide energy subsidies and fund social programs, weakening its ability to control one of the world’s highest inflation rates and manage the money supply.
“This is a legal chess game,” said Alberto Ramos, Latin America analyst at Goldman Sachs.
“If (Argentina) solves this, its worries about reserves disappear. The worry about reserves comes from the fact that this is still an open issue that prevents access to normal and conventional sources of financing.”
Associated Press writers Matthew Craft in New York and Luis Andres Henao in Santiago, Chile contributed to this report.
8. SINGER SAYS ARGENTINA WON’T NEGOTIATE AS DEFAULT LOOMS (Bloomberg.com)
By Camila Russo
2014-06-30
June 30 — Benoit Anne, head of emerging-market strategy at Societe Generale SA, discusses Argentina’s debt payments and the impact of a possible default on Latin American assets. He talks with Guy Johnson on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)
Elliott Management Corp. said Argentina is refusing to negotiate a settlement over defaulted bonds, casting doubt on the country’s ability to avoid another debt debacle after a U.S. court blocked all its note payments until a deal is reached.
“Argentina’s professed willingness to negotiate with its creditors has proven to be just another broken promise,” Jay Newman, a money manager at the hedge fund run by billionaire Paul Singer, said in a statement today. “There are no negotiations underway, there have been no negotiations, and Argentina refuses to commit to negotiations in the future.”
The nation has a 30-day grace period after missing $539 million of debt payments due today in dollars, euros and yen to avoid its second default in 13 years. The U.S. Supreme Court on June 16 left intact a ruling requiring Argentina pay about $1.5 billion to defaulted debt holders as it makes payments on restructured bonds that stemmed from its 2001 default. Argentina last week transferred funds to its bond trustee to pay restructured notes without providing funds for the holdouts, only to have U.S. District Court Judge Thomas Griesa order the payment sent back while the parties negotiate.
9. ARGENTINA FACES DEFAULT AS TALKS WITH HEDGE FUNDS BREAK DOWN (Newsweek.com)
By Leah McGrath Goodman
6/30/14
The fate of Argentina’s economy now rests on its ability to resolve a dispute with a group of bondholders led by a multibillion-dollar hedge fund.
“Argentina’s professed willingness to negotiate with its creditors has proven to be just another broken promise,” said Jay Newman, a portfolio manager at Elliott Management Corp., a New York hedge fund that specializes in profiting off complex legal disputes that, like in the case of Argentina, often take years to resolve.
The fund’s NML Capital division is leading a group of 19 plaintiffs seeking full payment of their Argentine bonds totaling an estimated $1.5 billion — most of which were bought for cents on the dollar as Argentina slid into default in 2001. Monday marks the country’s second descent into default in 15 years.
“Argentina has refused to negotiate any aspect of this dispute,” Newman stated, breaking his silence for the first time since mediated discussions were attempted last week. “There are no negotiations underway, there have been no negotiations, and Argentina refuses to commit to negotiations in the future.”
A person briefed on the discussions told Newsweek that the talks simply failed to launch, hitting a wall Saturday as Argentina proved inflexible to the hedge funds’ starting point and vice versa.
From the vantage point of Elliott, Argentina’s lawyer have issued demands instead of starting negotiations in earnest, the person said. Special master Daniel Pollack, the court-appointed mediator in the talks, stated last week that the two sides were in communication, but had not reached a settlement.
Elliott’s Newman issued his statement by email Monday, the same day Argentina was due to make a $539 million bond payment to another set of bondholders who agreed to partial payments on their bonds years ago – unlike the hedge fund “holdout” group led by Elliott Management.
Under U.S. law, Argentina cannot legally pay one bondholder group without paying the other. Argentina’s dispute with this “equal treatment” finding by a U.S. District Court was the subject of a Supreme Court appeal rejected by the high court two weeks ago, which brought the long-simmering dispute to a head.
If Argentina does not pay both bondholder groups Monday, it triggers a 30-day grace period that will force the country into default July 30 if it does not come up with all of the funds in time.
In the wake of the Supreme Court’s rejection of Argentina’s case, the country’s president, Cristina Kirchner, vowed in a national broadcast earlier this month not to “submit the country to such extortion” by what she called “the vulture funds.”
Part of Argentina’s argument against paying the holdout hedge funds in full is that this could land it in a legal quandary where it may have to do the same for the rest of its bondholders, most of whom agreed in 2005 and 2010 to reduced bond payments under an exchange agreement. If this happens, Kirchner estimated, it could cost the nation as much as $15 billion, which it cannot afford. (Elliott Management disputes this, putting the number at closer to $6 billion.)
“It’s our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators,” Kirchner said in her national broadcast.
In an effort to pay the exchange bondholders accepting partial payment – and exclude the holdout bondholders such as Elliott Management – Argentina transferred $539 million to bond administrator Bank of New York Mellon Corp. last week, provoking the ire of District Court Judge Thomas Griesa.
The judge had forbade Argentina from paying just the exchange bondholders and not the holdouts as part of an injunction that bound Argentina under the bonds’ antiquated “pari passu” provision, a Latin term meaning “with an equal step,” buried in the original bonds’ fine print. This clause is the real reason why the fate of the holdout bondholders is tied to that of the exchange bondholders, who have strenuously objected to being held hostage to these proceedings.
Calling the financial transfer an “explosive action” that could up-end settlement talks with the hedge fund-led bondholders such as Elliott, Judge Griesa demanded that Bank of New York Mellon return the funds to Argentina until it could pay both sets of bondholders.
Much is at stake for Argentina, as its refusal to pay the hedge fund-led holdouts, which include heavyweight New York hedge fund Aurelius Capital Management, could decimate the country’s chances for financial recovery.
In addition, there could be dire consequences for the exchange bondholders who only reluctantly agreed to reduced payments from Argentina and now are getting nothing.
In court proceedings last year, David Boies, a lawyer representing the exchange bondholders, told a panel of judges reviewing Griesa’s injunction that if Argentina defaults, it would destroy the value of the bonds. “It’s going to be terrible for my clients,” he told the panel. Turning to the lawyer for Elliott’s NML division, he said: “They’re going to profit from the default.”
The past two week’s events do not bode well for Argentina, which faces heightened potential for financial ruin no matter what it does.
With Argentina still attempting to defy the U.S. court orders, resisting negotiations and taking out ads in major newspapers casting its opponents in a negative light, it is increasingly looking like the 30-day grace period may be for naught and the already financially troubled country may skid into default.
Over the weekend, Argentina made it clear to the hedge fund-led holdout group that it would not proceed with negotiations unless the equal treatment provision on its bonds was lifted indefinitely and Argentina could make its $539 million payment to the exchange bondholders Monday – but not the holdout group, according to the person briefed on the discussions. Without strong legal protections in place, that wasn’t a viable option for Elliott Management and the rest of the holdout group, this person said. The demands of each side left talks at a standstill.
“Argentina’s government has chosen to put the country on the brink of default,” Newman said. “We sincerely hope it reconsiders this dead-end path.”
10. HOLDOUT BONDHOLDERS SAY ARGENTINA NOT AT NEGOTIATING TABLE (Reuters.com)
By Daniel Bases
Jun 30, 2014
Holdout investors in Argentine sovereign debt said on Monday they have not met with the government to negotiate a settlement on defaulted debt, and accused Buenos Aires of refusing to enter talks as a 30-day countdown to default begins.
Holdout investors are led by Elliott Management’s NML Capital Ltd and Aurelius Capital Management, two hedge funds that specialize in buying up deeply discounted or distressed debt and negotiating profitable settlements, often through the use of the courts.
“Argentina’s professed willingness to negotiate with its creditors has proven to be just another broken promise. NML is at the table, ready to talk, but Argentina has refused to negotiate any aspect of this dispute,” said Jay Newman, senior portfolio manager at Elliott Management.
“We sincerely hope it reconsiders this dead-end path,” Newman said, noting there have been no negotiations so far and the government has refused to commit to negotiations in the future.
Argentina late on Monday said it would send a delegation to New York to meet on July 7 with court-appointed mediator Daniel Pollack. It made no mention of whether it would sit down with the holdouts.
“Argentina is reiterating its desire to negotiate according to just, equitable and legal conditions that take into account the interests of 100 percent of creditors,” the economy ministry said in a statement.
In 2012, U.S. District Judge Thomas Griesa in New York awarded the holdouts $1.33 billion plus accrued interest in a case based upon the pari passu, or equal treatment, clause used to sell the bonds originally in 1994.
The award, which says Argentina must make payment to holdouts at the same time it pays investors who accepted two sovereign debt restructurings in 2005 and 2010, was upheld on appeal and denied a hearing by the U.S. Supreme Court, effectively exhausting Argentina’s U.S. legal recourse.
Last week Argentina defied Griesa and made a scheduled coupon payment of $539 million due June 30 on restructured bonds, saying it was bound by Argentine law to make the payment.
The money was deposited in the Bank of New York Mellon’s account at the Central Bank of Argentina without making the court-ordered payment to holdout investors at the same time.
In total the government transferred $832 million for payment to various bondholders last week.
As a result of Griesa’s ruling, U.S. banking institutions are blocked from making delivering payments to exchange bondholders. BNY Mellon told Griesa on Friday it did nothing with the deposit.
A BNY Mellon spokesman told Reuters the bank had no further comment beyond a notice issued Monday to exchange bondholders stating the court order stopped it from making the payments.
Now the clock starts on a 30-day grace period for Argentina to either come to an agreement with holdouts and unblock payment to exchange bonholders by July 30 or default on its bonds for a second time in 12 years.
Griesa named Pollack, a veteran New York financial trial lawyer, to try to mediate a settlement between Argentina and the holdouts.
Argentina defaulted on roughly $100 billion in sovereign debt in 2001-2002 and negotiated a restructuring with eventually 93 percent of bondholders in a deal widely considered one of the most onerous for investors in history, paying between 25 and 29 cents on the dollar.
Griesa on Friday called Argentina’s deposit with BNY Mellon illegal and said that the money should “be returned to the Republic, simple as that.”
Argentina responded saying the deposited money no longer belonged to the government. Its status remains unknown.
“The Argentine government seems determined to cause many billions of its debt to accelerate on July 30 and start yet another Argentine debt crisis. This is completely avoidable. An eminently affordable settlement can be reached with the holdouts, yet Argentina’s administration refuses even to meet,” Mark Brodsky, chairman of Aurelius said in a statement.
The cost to insure a portfolio of Argentine sovereign debt has risen in the last week. An investor wanting to insure a $10 million trade for one year would need to spend $2.92 million as an up front cost plus an additional $500,000, according to data provider Markit on Monday.
DEFAULT COUNTDOWN STARTS
The failure to deliver the coupon payment on restructured bonds by the end of business on Monday means Argentina is technically in default.
Varun Gosain, a portfolio manager at New York-based Constellation Capital Management with investments in Argentine assets who participated in the debt exchanges, is not necessarily reconciled to a default in 30-days.
“Both parties have incentives to try and move things forward. You don’t need an agreement by July 30th, but you need everybody to think it is better to keep negotiating,” he said.
Argentina says it cannot voluntarily offer better terms for a restructuring with holdouts because of a provision called the Rights upon Future Offers (RUFO), which expires on Dec. 31. It is designed to stop anyone getting a better deal than the exchange bondholders.
“I think RUFO is a big concern. Any agreement has to negotiate around it and if is not properly dealt with it could create a big contingent liability,” said Gosain.
Argentina says an agreement with holdouts would open it to the risk of claims from other holdouts as well as exchange bondholders that would bankrupt the country.
On June 25 Economy Minister Axel Kicillof came to New York for 10-hour visit to speak at a meeting of the G77 plus China Committee at the United Nations. He said the country was being pushed into default though he did not meet with holdouts.
When Kicillof announced money was deposited with BNY Mellon, the government issued a statement mentioning “eventual judicial actions that would allow us to exercise our rights as a member of the international community … before the International Criminal Court in the Hague.”
This hints the government might try to take a new legal avenue to avoid the U.S. court order.
Kicillof is due back in the United States on Thursday to attend an Organization of American States meeting in Washington.
(Additional reporting by Hugh Bronstein, Alejandro Lifschitz, Sarah Marsh and Jorge Otaola in Buenos Aries; Editing by Chizu Nomiyama, W Simon and Andrew Hay)
11. COLUMN-JUDGE IN ARGENTINA BOND GIVES PRAISE TO LAWYERS: FRANKEL (Reuters News)
By Alison Frankel
30 June 2014
(The opinions expressed here are those of the author, a columnist for Reuters.)
Argentina continues to search for a tenable position in its war with the hedge funds it’s due to pay about $1.65 billion by July 30, under rulings affirmed earlier this month by the U.S. Supreme Court.
Late last week, after previously suggesting that it would be open to negotiations with the hedge funds to avert a default on its restructured debt, Argentina deposited about $530 million with the Bank of New York Mellon to pay exchange bondholders, seemingly in defiance of U.S. court orders, then threatened to bring an action in The Hague against the United States and U.S. District Judge Thomas Griesa of Manhattan for violating international law.
On Friday, at the latest hearing in this mess, Griesa refused to grant Argentina a stay of the injunction requiring it to pay the hedge funds at the same time it pays exchange bondholders. He told BNY Mellon to return the $530 million deposit from Argentina, which he said was an “improper” violation of his orders. (Argentina said it is caught between competing Argentine and U.S. legal directives.)
Griesa, who has twice returned from vacation to preside over emergency hearings in the last two weeks, was so impatient with Argentina’s brinkmanship that he also on Friday finally threatened contempt of court for anyone who attempts to evade his injunctions.
But Griesa once again seemed to go out of his way to spare Argentina’s lawyers at Cleary Gottlieb Steen & Hamilton from his ire. As I’ve reported in previous columns, the holdout NML Capital has specifically targeted Cleary along with its client, arguing that the law firm advised Argentina on a plan to shift payments to exchange bondholders out of the reach of U.S. courts, and then misrepresented Argentina’s intentions to both the U.S. Supreme Court and Judge Griesa.
NML counsel Robert Cohen of Dechert kept up that drumbeat on Friday, again arguing to Griesa that Cleary had made assurances to the judge that had not panned out. Cleary had assured Griesa that Argentina wouldn’t violate his orders, but Argentina promptly did, Cohen said.
‘FAIR AND SQUARE’
Griesa wasn’t buying it. He chided Argentina’s lawyer Carmine Boccuzzi of Cleary for requesting a stay in letters to him rather than in a formal motion, but in the same breath complimented Boccuzzi and Cleary partner Jonathan Blackman on their skills. More significantly, he said later in the hearing that he has no problem with the actions of the Cleary lawyers.
“I want to say this to Mr. Boccuzzi and Mr. Blackman,” Griesa said. “I’ve had trouble, and I’ve expressed it, with the Republic. But both of you have been fair and square in every way before me, and I appreciate that.”
The Argentina debacle won’t be solved before next week at the earliest. Despite Griesa’s urging, Argentine officials still have not sat down for talks with the hedge funds and the Griesa-appointed special master. On Monday, NML senior portfolio manager Jay Newman issued his first public statement on the crisis: “NML is at the table, ready to talk, but Argentina has refused to negotiate any aspect of this dispute,” he said. “There are no negotiations under way, there have been no negotiations, and Argentina refuses to commit to negotiations in the future. Argentina’s government has chosen to put the country on the brink of default. We sincerely hope it reconsiders this dead-end path.”
I’m sure that Cleary’s priority right now is Argentina’s imminent default, not Judge Griesa’s regard for the firm. But it must be nice for the firm to know that the judge doesn’t hold Cleary responsible for its client’s defiance.
A Cleary spokeswoman declined to comment.
12. WHAT’S UP WITH ARGENTINA’S ‘VULTURES’ TODAY? (Bloomberg View)
By Matt Levine
JUN 30, 2014
Very little about the Argentina situation is at all clear, but this is reasonably clear: Argentina won’t default on its bonds today. Not because everything will magically get wrapped up by 5 o’clock, but just because Argentina’s $539 million interest payment due today is subject to a 30-day grace period, so it’s really due 30 days from today.
The story, remember, is: Argentina has some exchange bonds, which it wants to pay, and some holdout bonds, which it doesn’t. Judge Thomas Griesa, of the U.S. District Court for the Southern District of New York, has ordered it not to pay the exchange bondholders unless it also pays the holdout bondholders, led by Elliott Management.(1)
What can Argentina do in the next 30 days? One obvious answer is to negotiate a quick settlement with the holdouts. Two weeks ago I assumed that that’s what would happen, since both sides have really good reason (1) to want a deal and (2) to want a deal before Argentina defaults. Since then, though, you would not say the rhetoric has been particularly friendly? Here is a furious, all-caps “Official Communiqué of the Argentine Government,” published today, denouncing the “judge’s bias in favour of the vulture funds.” A friendly settlement does not exactly feel imminent, though again, they’ve got a month, and they do seem to like dramatic brinksmanship.
But what are the other options, besides negotiated settlement and catastrophic default? Below I’ve collected some schemes that I find interesting, which are very different from schemes that I think would work. These are just ideas that tickled my fancy, and that I pass along to you in case you are similarly ticklish.
Scheme 1: Default, then settle using CDS money.
This scheme looks a lot like settling before the 30-day grace period expires, except that it takes place just after the 30-day grace period expires. Argentina misses the grace period, defaults on its exchange bonds, then cures that default by paying interest the next day. And the day after that, it announces a settlement with Elliott and friends.
What is the appeal of this plan? Well, as I’ve noted before, it is widely (though not universally) assumed that Elliott owns a lot of credit default swap protection on Argentina’s bonds. If Argentina defaults, that will trigger that CDS, and Elliott will be in line for a big payout. If that payout is, say, $500 million, then Elliott should be indifferent between receiving, say, $2 billion worth from Argentina or $1.5 billion from Argentina and $500 million from its CDS contracts.(2)
In other words, this is the trick that Blackstone used with Codere: Do a quick default on your bonds so that your creditors get paid on their credit default swaps, and have them apply the money they got from their CDS to get you more favorable terms. I was fond of this trick when Blackstone used it, and I’d be at least as fond of it if Argentina did the same.
One problem with this scheme is that it is not entirely clear how much CDS Elliott owns, and so how much value can be extracted there. Also, any settlement probably involves giving Elliott new bonds, and a default does nothing good for the value of those bonds. If Argentina defaults again — particularly as part of a scheme with Elliott — that is not, you know, great for its reputation in the international bond markets.(3)
The other potential problem is: This requires actually paying Elliott. I don’t know if this is a problem! Giving Elliott some money is sort of a necessary part of settling this dispute. But if Argentina really is prepared to go to the ends of the earth to prevent Elliott from seeing a dime — as its rhetoric sometimes suggests — then this trick won’t appeal very much.
Scheme 2: Nondefault default.
This scheme involves Argentina sending money to its paying agent, and then saying, “What? We paid, it’s not our fault if the U.S. payment system didn’t get the money to the holders.” Adam Levitin suggested this scheme on Credit Slips, and it seems to be a big part of Argentina’s current plan. In defiance of Judge Griesa’s orders, Argentina deposited the interest money with Bank of New York Mellon, the paying agent for the bonds. (Judge Griesa told BNY Mellon to send the money back.) That Official Communiqué is titled “Argentina Pays,” and Joseph Cotterill interprets it to mean that Argentina is “prepared to argue that any payment it tries to make is enough to fulfil its obligations to the restructured bondholders: if the payment doesn’t go through, it’s the system’s fault.”
This is not so much a scheme as it is just saying some magic words. One problem here is that those magic words may not be effective to avoid default under the terms of the bonds.(4) But the bigger problem is that the magic words don’t get money to holders, and eventually they will want their money. If your goal is to maintain access to the international capital markets, a technical argument that you’ve paid your debts isn’t nearly as good as actually getting money to your creditors.
Scheme 3: Pay by check.
OK, now we’re getting into the creepy stuff. This scheme starts with the fact that the investors who own Argentina’s exchange bonds don’t own any bonds. Instead, all the bonds are owned by nominees for clearing systems such as the Depository Trust Company (in the U.S.) and Euroclear and Clearstream (in Europe) on behalf of the investors, who own only claims on those clearing systems.(5) This is true of basically all stocks, bonds, etc., and is normally very convenient: If you want to transfer a bond, you don’t have to messenger over a very valuable piece of paper. You just have DTC make a few entries in your electronic account. The “global note” stays at DTC and never changes hands.
So the way payment normally works is, Argentina wires money to its paying agent, Bank of New York Mellon(6); BNY Mellon wires the money to DTC as global noteholder; and DTC wires the money to its participants. (The participants tend to be brokers, so they’re wiring the money on to their investor clients.)
The problem in this chain is around BNY Mellon: Judge Griesa won’t let BNY Mellon send the money on to DTC, so it can never get to the holders. (The economic holders, that is: The DTC participants and their customers, not the technical global note holders.) On the other hand, if Argentina just put $100 bills in envelopes and mailed them to the economic holders, it’s hard to see how Judge Griesa could stop it. Even if Argentina sent the bondholders checks, or even wire transfers, it could probably get away with that, since Judge Griesa’s injunction doesn’t apply to pure intermediary banks.
But Argentina doesn’t know who the holders are: The only official holders of the bonds are the nominees of DTC and Euroclear/Clearstream. With corporate bonds, there’d be a solution: The holders could cut out the middleman by going to DTC and asking for a “certificated note” — that is, for DTC to take your bonds out of its pool and give you an actual physical piece of paper representing your own bond. Then once you have your own bond, just, like, ask Argentina to send you a check.
Now, this doesn’t seem to work for Argentina: Its bonds can only be held in global note form, unless Argentina decides to issue certificated notes.(7) Can it just decide to do that? It … seems unlikely. It would clearly be a violation of the injunction by Argentina,(8) though Argentina doesn’t care about that. But the injunction also applies to Argentina’s agents, including BNY Mellon and DTC, and it would probably violate the court order for them to participate in any exchange like this.
The other problem here is that holding certificated notes is a big pain for the holders: They’re harder to trade, to repo, to finance, everything. So if your goal is not to hose the exchange bondholders, making them hold certificated notes, even if you could do it, doesn’t seem great.
Scheme 4: Forced wire transfers.
Here’s one further layer of creepy, suggested to me by an emerging markets fund manager. This gets into the details of how Argentina has sent the interest payment to BNY Mellon. Here’s what Argentina says (though it says it in all caps):
The Argentine Republic … has proceeded to pay principal and interest on its bonds under foreign law in an amount equivalent to USD 832 million, 539 million of that figure deposited in Bank of New York Mellon (BONY) accounts #15098 and #15002 in the Central Bank of the Argentine Republic.
Who has that money? Well, what do you mean by “has,” and what do you mean by “money”? Argentina “paid” that money by telling its central bank to electronically credit some dollars to BNY Mellon’s account at the central bank. And BNY Mellon, in violation of the indenture but in accordance with a New York court order, didn’t send the money on to the exchange bondholders.
What if Argentina ordered it to do so? Well, it probably wouldn’t resist Judge Griesa’s order. But what if Argentina “ordered” it to do so by making Argentina’s own central bank move that electronic credit from the BNY Mellon account to another account — say, the accounts (at the Argentine central bank or elsewhere) of the nominees for DTC, Euroclear and Clearstream?(9) After all, it’s all just electronic transfers, and right now those transfers are in the hands of Argentina’s central bank. If BNY Mellon is defying its obligations to Argentina, why can’t Argentina’s central bank correct that?
That might be a little lawless, and I don’t know whether it could be done under Argentine law. But if it could, Argentina could have a little bit of fun by getting the money even one step further down the chain — not to BNY Mellon but to DTC, Euroclear and Clearstream.
Now, it’s perhaps only a little bit of fun: Judge Griesa’s order forbids the clearinghouses from passing on payments to exchange bondholders, so the money might be just as stuck at DTC and Euroclear and Clearstream as it currently is at BNY Mellon. But maybe not.
In particular, the holders of euro-denominated exchange bonds think that Judge Griesa’s order should not apply to Euroclear and Clearstream. Here’s the motion they filed on that subject yesterday, and — though I am no expert — it seems pretty compelling. In particular, the euro exchange bondholders argue that the payment process for the euro bonds occurs entirely outside of the U.S., that Euroclear and Clearstream are not subject to U.S. jurisdiction, and that Belgium and Luxembourg — where Euroclear and Clearstream, respectively, are located — forbid those clearinghouses from holding up payments because of a U.S. court order.
So if Argentina can get the money to Euroclear and Clearstream, there’s a decent chance it can pay off its euro bondholders, at least: Either Judge Griesa will just release Euroclear and Clearstream from the order, or else a European court will order them to ignore the order and they’ll do so.(10)
Getting the money to DTC doesn’t do as much for the holders of the (larger) U.S. dollar exchange bonds, but it does something. For one thing, if DTC has their money and doesn’t give it to them, the bondholders can sue it. So far this has been a hypothetical, as the money has never gotten that far, but if it does — if DTC is holding money solely as a clearinghouse for the exchange bondholders — then they have a case that it should give it to them. (And that DTC is not an agent of Argentina but rather just holding on to bondholders’ property.) It’s worth a shot: Judge Griesa will not sympathize, but perhaps an appeals court would.
That’s particularly true if the euro-denominated bonds are getting paid while the U.S. dollar ones aren’t. Today is a bit of a rough day for the U.S. dollar as the global currency. BNP Paribas is being severely punished for violating U.S. law outside of the U.S., because it used dollars, and “Pretty much any dollar transaction — even between two non-US entities — will go through New York City at some point, where it comes under the jurisdiction of US authorities.” It’s enough to make you not want to use dollars for your international transactions.
And so in fact here is a Wall Street Journal article about how Russian companies have come back to international capital markets using euros, not dollars, because “U.S. banks are still cautious about dealing with Russian borrowers amid the tensions with Ukraine and the lingering possibility of further sanctions.” The more useful the dollar is as an instrument of U.S. foreign policy, the less useful it is as a currency for global transactions.
More generally, if you prevent one or two pariahs from using dollars, then you can cut them off from the global financial system. But if you prevent enough pariahs from using dollars, then you eventually cut the dollar off from the global financial system. We’re a long way from that, obviously. All the same, you can see the problem if Argentina’s euro bondholders get paid normally while its dollar bondholders are caught up in never-ending drama. A quick settlement here would be good for Argentina, and probably at least as good for Elliott. But it would be good for America too.
(1) For more, see footnote 2 here. The Elliott entity involved is technically NML Capital, and Aurelius Capital is also a holdout plaintiff, but I just call the plaintiffs Elliott for my own convenience.
(2) Actually Argentina would probably give it bonds, not cash, so it might prefer $1 of cash to $1 of present value of Argentine bonds.
(3) Also of course the default could trigger acceleration by the exchange bondholders, and make Argentina’s problem even worse, though I think if you did it quick enough you could probably avoid that. See in particular section 4.2 of the indenture, which allows for cure of defaults before acceleration.
(4) See Levitin’s post for more details, as well as the prospectus and indenture for the bonds.
(5) There are limitless levels of detail here. Technically the bonds are not owned by DTC and Euroclear/Clearstream, but by “nominees” for those clearing systems. (See page S-19 of the prospectus.) DTC’s nominee is Cede & Co., while Euroclear’s and Clearstream’s is Bank of New York Depositary (Limited) in London. (See this declaration by a Bank of New York officer, as well as Judge Griesa’s 2012 opinion (“There are two registered owners for the 2005 and 2010 Exchange Bonds. One is Cede & Co. and the other is the Bank of New York Depositary.”).
(6) Technically: “The Republic transfers funds to a US Dollar deposit account in the name of the Trustee at Banco Central.” The “Trustee” is Bank of New York Mellon as indenture trustee; “Banco Central” is the Banco Central de la Republica de Argentina, Argentina’s central bank.
(7) See pages S-73 and S-74 of the prospectus.
(8) From the injunction:
The Republic is permanently PROHIBITED from taking action to evade the directives of this ORDER, render it ineffective, or to take any steps to diminish the Court’s ability to supervise compliance with the ORDER, including, but not limited to, altering or amending the processes or specific transfer mechanisms by which it makes payments on the Exchange Bonds, without obtaining prior approval by the Court;
(9) Confoundingly, a BNY Mellon entity — though a U.K. one — is the Euroclear and Clearstream nominee. See footnote 5.
(10) The euro bondholders also want the judge to excuse BNY’s Luxembourg branch, the paying agent on the euro bonds, from the order; that one seems harder. But if it works then Argentina can pay the euro bondholders without any shenanigans.
13. ARGENTINA, HOLDOUTS HAVE YET TO REACH AGREEMENT ON BONDS (Dow Jones Institutional News)
30 June 2014
Argentina appeared to let a Monday deadline pass without paying creditors, starting the clock on a 30-day grace period to avoid its second default in 13 years.
U.S. courts have barred Argentina from making an interest payment scheduled for June 30 unless the country also pays a small group of hedge funds that have refused restructuring offers since its 2001 default. Argentina must reach a deal with these holdout creditors by July 30 or it will default on some of its restructured bonds.
Both sides participated in conference calls with a court-appointed mediator late last week, but appeared far apart on Monday. Elliott Management Corp., which operates NML Capital Ltd., one of the holdouts, said in an emailed statement that no talks are currently under way and that Argentina has refused to negotiate.
Mark Brodsky, the founder of Aurelius Capital LP, another holdout creditor, said in a separate email that “Argentina’s administration refuses to even meet.”
Argentina’s Economy Ministry and lawyers representing Argentina at Cleary Gottlieb Steen & Hamilton LLP declined to comment.
Despite the potential for default in a month, Argentina’s bonds are trading as if both parties will ultimately strike a deal. Argentina’s dollar bonds maturing in 2033, the ones due for an interest payment on June 30, were trading at 84 cents on the dollar, slightly lower than 85.2 cents on Friday. The yield edged up to 10.45% from 10.26%.
Standard & Poor’s Ratings Services, Fitch Ratings and Moody’s Investors Service have all said a missed interest payment by Argentina isn’t an automatic trigger for a downgrade to default status. S&P and Fitch have said they could lower Argentina’s rating any time during the 30-day grace period, depending on the progress made during negotiations.
Argentina has said repeatedly during its long battle with creditors that a settlement would open the door to an avalanche of other claims. Argentina has said these could exceed $120 billion and bankrupt the country, although some analysts estimate this figure could be much lower. The country has frequently called the holdouts “vultures” and likened their efforts to “extortion.”
However, several officials, including President Cristina Kirchner, have more recently said they were open to talks with the holdouts.
Last week, the U.S. District Court appointed an attorney, Daniel Pollack, to conduct negotiations between Argentina and the holdouts. Attorneys for both parties participated in conference calls hosted by Mr. Pollack on Friday and Saturday afternoon, according to a person briefed on the matter. Mr. Pollack confirmed the conference calls took place.
In both cases, Argentina’s lawyers asked that the court delay enforcing its order barring payments to restructured bondholders as a condition for starting negotiations, the person said. The U.S. District Court denied a similar request last week.
Matt Wirz contributed to this article.
14. ARGENTINA FACES HEDGE FUNDS IN COUNTDOWN TO DEFAULT (Daily Bankruptcy Review)
30 June 2014
Argentina risks technical default by the end of Monday in its combat with so-called vulture funds over a U.S. court ruling that it must settle unpaid debts to bondholders, Agence France-Presse reported.
The country must reach an agreement to pay $1.3 billion to these “vulture” hedge funds by the end of July to avoid default—but a decision by a judge on Friday has brought that danger even closer.
Wheeling overhead are speculative funds that bought Argentinian bonds at the bottom of the market on the chance that they could extract full repayment later on.
If they do, Buenos Aires could face a bill of up to $15 billion, which it says would bring it to its knees.
Argentine President Cristina Kirchner has condemned what she terms “extortion” by the vulture funds.
Argentina has made a first payment of $225 million (165 million euros) to bondholders who in 2005 and 2010 accepted that the value of debt owed by the country would be cut by 70%.
That debt comes to maturity, or is due for repayment, on Monday.
On Thursday, Argentina lodged slightly more than $1 billion, some of which was placed in a U.S. bank, to redeem those bonds.
But a New York judge, Thomas Griesa, has ordered that money be returned and instead said two funds, which had bought bonds at a hugely depressed price on the market and refused to accept the restructuring terms, should be paid first.
US judicial authorities ruled recently on long-running litigation that these funds, NML Capital and Aurelius Management, are entitled to full payment of the bonds, which Argentina was unable to honour when it went bankrupt in 2001.
Negotiations on how payments might be made began under the aegis of a mediator in New York on Wednesday.
The two funds have signalled that they would accept payment in treasury bonds.
But such a settlement would have a big domino effect since other funds, known as holdouts, which refused to accept the restructuring terms, could demand similar treatment.
That could cost Argentina a total of $15 billion.
The central bank of Argentina has only $28.5 billion in reserves, the country has to import energy, and the economy is heading into recession. The government has warned that an extra bill of $15 billion would have the effect of tipping it into bankruptcy.
To make the situation worse, a final payment to creditors who accepted the restructuring falls due on July 30. This is the second deadline, which could trigger default.
“If, within a month, there is no agreement with the holdouts, the situation will become extremely difficult,” said Daniel Marx, an executive at financial consultants Quantum Finanzas in Argentina.
The permanent council of the Organization of American States was due to hold an emergency meeting on Monday at Argentina’s request to assess the situation.
The case could cloud future restructuring of public debt by encouraging bond holders to reject deals with countries in financial difficulty in the belief that some of them will eventually obtain full repayment.
This has led the International Monetary Fund to express concern that the outcome of this case could have far wider implications for the entire debt-market system.
A former director of the Argentinian central bank, Javier Gonzalez Fraga, has said that the country is trying to reach agreement with the vulture funds without triggering what is known as the Rufo clause. That stands for Rights upon future offers, meaning the right for a creditor to obtain the terms of the best offer.
Since bankruptcy in 2001, Argentina has been paying restructured debts owed to 93 percent of the private creditors, which accepted the 70-percent write-down in 2005 and 2010.
Since 2002, Argentina has done well out of exporting agricultural produce at high prices. In 2006, it settled debt owed ot the IMF and last month it reached an agreement with the Club of Paris of official creditors.
15. ARGENTINA SEEKS DEAL W/HOLDOUTS AS DEFAULT LOOMS (Market News International)
By Charles Newbery
30 June 2014
Argentina this week will continue efforts to negotiate a solution with holdout creditors who won a U.S. court battle to collect full repayment on bonds leftover from a 2001 default on $100 billion.
The country lost the court battle with the creditors in June, meaning that it must repay them in full when it makes its June 30 payment to the 92.4% of creditors who accepted 30 cents on the dollar in restructures of the defaulted bonds in 2005 and 2010.
Argentina tried to make the next payment to the restructured bondholders by wiring $539 million to its accounts in the Bank of New York Mellon, part of a total $1 billion in debt payments due Monday.
But U.S. federal judge Thomas Griesa, who is hearing the case, said paying the restructured bondholders would violate his orders to pay the plaintiffs, who rejected two restructuring offers.
Griesa told the trustee bank to send the funds back to Argentina, a move that also prevented the embargo of the money by the plaintiff creditors, among them a hedge fund of American billionaire Paul Singer.
Griesa ruled in 2012 that Argentina must repay the plaintiff creditors at the same time that it pays the restructured bondholders, a ruling based on pari passu, an equal treatment of creditors clause in the contracts of the bonds.
Argentina’s subsequent appeals failed, raising the threat of default on the restructured bonds.
Griesa, however, called on both sides to sit down for talks, which started Friday.
In yet another full page advertisement in the Washington Post over the weekend, the government accused the judge of trying to force Argentina into default, and vowed to make the debt payments on time.
Argentina has a 30-day grace period for payment on the restructured bonds, or until July 30.
“The ball has returned to Argentina’s side,” Eugenio Bruno, a debt renegotiation specialist at a law firm in Buenos Aires, said on Radio Ciudad after Griesa’s latest decision. He said Argentina cannot take action against the Bank of New York Mellon for failing to carry out distribution of the bond payments because there is no legal instance that is higher than the court order.
Bruno said a solution can only now be found in negotiations with the holdouts.
Argentine President Cristina Fernandez de Kirchner has said she is willing to negotiate a solution, but she said that it must be fair and equitable for 100% of the holders of bonds from the 2001 default.
The lack of a solution likely will keep bond and stock markets volatile.
But if a solution is found, this could spur buying of local assets as it would put behind a long-running impediment for the country to return to global financial markets for the first time since the default.
With less monetary expansion, there could be a slowdown in the 30% inflation rate, something that already is happening but because of a cutback in demand as the economy contracts.
The government will report April economic activity Monday as well as May consumption of public services and construction activity. Out the next day is a report on June tax collections.
16. ARGENTINA’S DISPUTE WITH ‘HOLD-OUT’ CREDITORS ENTERS FINAL STAGE BUT NEGOTIATED SOLUTION TO AVOID TECHNICAL DEFAULT STILL FEASIBLE (IHS Global Insight Daily Analysis)
By Carlos Caicedo
30 June 2014
In a new twist in the dispute between Argentina and ‘hold-out’ creditors, on Friday 28 June, New York judge Thomas Griesa declared illegal Argentina’s attempt to pay USD832 million to restructured bondholders, three days ahead of when it was due. On 27 June the Argentine government ordered the central bank to transfer the money to the Bank of New York Mellon, which acts as a fiduciary agent. The judge blocked the payment as it was at odds with previous rulings. The payment was due on 30 June, but under Griesa’s 16 June ruling, Argentina is forbidden from paying the bondholders of restructured debt unless it also pays the ‘hold-outs’. The latter refused to join the restructuring of debt defaulted in 2001 to which 93% of bondholders adhered. Argentina’s claims that if it abides by Griesa’s ruling it would have to pay USD15 billion in total, depleting its foreign reserves and forcing it into default again.
By trying to make the payment three days before it was due Argentina sought to show the markets that it is willing to pay, but it could not do so because of Judge Griesa’s intransigency.
Significance: There is a 30-day grace period for Argentina to honour its obligations; this means that technical default would formally occur on 31 July if an agreement between the two sides is not reached by then. Despite the rhetoric, which is most certainly aimed at a domestic audience, Argentina has reluctantly accepted to enter negotiations with the ‘holdouts’. This in line with Argentina’s desperate efforts to put the default saga behind it and re-enter international capital markets. The recent decision to compensate Spanish energy firm Repsol and an agreement with the Paris Club (an informal group of financial officials from 20 of the world’s biggest economies) over defaulted debt point to that direction. Judge Griesa has already appointed a mediator and has urged both sides to reach an agreement. This would be a highly complex negotiation, but indications so far suggest that a negotiated solution is still feasible if both sides show sufficient flexibility.
17. THESE TWO DEBT PAYMENTS MAY BE HEARD AROUND THE WORLD; BOND-MARKET PARIAHS ARGENTINA AND PUERTO RICO ARE ON WATCH BY INVESTORS (MarketWatch)
By Ben Eisen
30 June 2014
NEW YORK  — Investors are intently watching two separate stories in the bond market Monday that could have rippling effects, challenging the traditional notions of how bonds are paid.
Argentina is expected to enter technical default for the second time in less than 15 years as the pariah of the debt markets negotiates with creditors in the wake of a Supreme Court ruling mandating payouts to a group of hedge funds. The South American nation’s negotiations are already rewriting the rules of sovereign debt restructuring.
Separately, a Puerto Rican agency is on watch for a potential default Tuesday after the U.S. commonwealth passed a law allowing its public corporations to restructure their municipal bond debt last week. Puerto Rico’s bonds are held in a wide array of municipal bond funds because of their exemption from federal, state, and local taxes, which means a default could portend broader pain in the market for local government bonds.
Cry for me, Argentina
Argentina has for years been locked in a legal battle with a group of hedge funds that refused to take an earlier restructuring deal on bonds that defaulted in 2001. Investors, led by Paul Singer’s NML Capital, have demanded to be paid in full due to a clause in Argentine bond documents that says the country can’t pay some bondholders without paying the others, called pari passu.
The country’s leadership has called these investors “vulture funds,” a reference to the tactic of buying up distressed debt at low prices and taking steps to enhance the payout. The country has sought to forego payments to the holdouts while paying the rest of the creditors — and it has generated a lot of publicity in the process. The nation has said it cannot afford to pay the vultures while also paying the investors who accepted the restructuring deal years ago.
The case has been making its way through U.S. courts for years, but the Supreme Court handed the hedge funds a major victory earlier this month when it declined to take up the case. That left in place a lower court ruling mandating Argentina must pony up the money to Singer & Co.
Argentina has a payment due on its restructured debt on June 30, but if it can’t work out a deal to pay the holdouts, it must miss the Monday deadline to pay the restructured bonds. That triggers a technical default, setting in motion a 30-day grace period before it becomes a full-fledged nonpayment.
The government tried to deposit money in a fund to pay on the restructured bonds last week, but a federal judge rebuffed that action, saying that it can’t pay on the restructured bonds without making good on the money owed to the holdouts. If those creditors manage to get full payment from Argentina, it may impact the willingness of other sovereign debt bondholders to accept a restructuring in the future.
Investors remain hopeful that a deal will be reached. The Argentina Merval stock index  dropped sharply in the wake of the Supreme court decision, though it has since rebounded. The index is on track to gain 2.5% this month. Argentine bond prices were stable Monday, according to Dow Jones newswires.
Puerto Rico surprise
The economically beleaguered commonwealth of Puerto Rico took municipal bond investors by surprise last week when it passed legislation that allows the island’s public corporations to negotiate a debt restructuring. These corporations, in particular the Puerto Rico Electric Power Authority, the Puerto Rico Aqueduct & Sewer Authority and the Puerto Rico Highway & Transportation Authority, issued nearly a third of the approximately $73 billion of the island’s outstanding bonds.
“This legislation is a reaction to the very real economic and fiscal stress experienced by all Puerto Rico entities since 2006,” wrote Barclays analysts, led by Thomas Weyl, in a report late last week.
Puerto Rico is a major issuer in the municipal bond market, selling debt in recent years to increase cash flow and aid in its budget deficit, even amid deteriorating fiscal conditions and population flight. Because many mutual funds hold the island’s junk-rated debt to generate tax-exempt yield, mom-and-pop investors in the muni market have a big stake in Puerto Rico.
Read: Puerto Rico’s travails hit muni bond firm that bet big
Two money management firms that hold a substantial chunk of Puerto Rico debt — Franklin Templeton Investments and OppenheimerFunds Inc. — both tried to block the law. Ratings analysts who dropped the agency debt ratings last week, said the law elevates other creditors like pensioners and public employees above bondholders.
Puerto Rico must make debt payments on its PREPA bonds on July 1. The island insists that it is willing and has the ability to pay on its debt, but investors are on edge.
“The law is potentially most imminently applicable to PREPA, which faces significant liquidity needs with near-term maturities of large bank borrowings,” said analysts at Moody’s Investors Service, led by Emily Raimes.
One tranche of PREPA debt maturing in 2028 dropped in price to 45 cents on the dollar after the law’s passage, from 53 cents before. The debt yielded nearly 15% on Friday.
18. ARGENTINA ECONOMY STAGES APRIL UPTICK, FAILS TO DISPEL RECESSION FEARS (Dow Jones Institutional News)
By Ken Parks
30 June 2014
BUENOS AIRES–Argentina’s economy managed a small uptick in April, though few analysts expect a quick recovery for an economy that is widely believed to be in recession.
The government said Monday that its monthly economic-activity indicator for April rose 0.6% from the previous month, but contracted 0.5% from April 2013.
The indicator, known by its Spanish acronym Emae, includes most of the components used to calculate quarterly gross domestic product.
Based on government figures, which show two consecutive quarter-on-quarter contractions, the economy is in a recession, says economist Fausto Spotorno.
“It’s going to continue like this all year,” says Mr. Spotorno, an analyst at Orlando J Ferreres & Asociados. The consulting firm, known as OJF, expects the economy will shrink 1.5% in 2014.
Local consulting firm Consultora Ledesma, which forecast a 0.2% drop in economic activity in April, expects GDP to fall 0.5% this year.
“We are on the border of entering our third recession in six years,” says Gabriel Caamaño, a Ledesma economist.
Argentina’s once fast-growing economy has been walloped by a toxic cocktail of double-digit inflation, sluggish trade with Brazil, and foreign-currency shortages that make it harder for companies to import materials and equipment.
The government’s decision to devalue the Argentine peso 20% in January and increase benchmark interest rates to almost 30% has also crimped growth, though those measures were successful in stopping a run on the central bank’s depleted foreign-currency reserves.
GDP contracted 0.8% during the three month period ending March 31, marking the second consecutive quarter-on-quarter contraction in the economy. GDP shrank 0.5% in the fourth quarter of last year.
President Cristina Kirchner has tried to revive growth by capping consumer-lending rates and offering inexpensive car loans. Those and other measures should lead to a recovery in the second half of the year, Cabinet Chief Jorge Capitanich said last week.
The auto industry, the linchpin of Argentina’s manufacturing sector, has been especially hard hit by slowing demand at home and in top trade partner Brazil. Production fell 22% on the year to 257,519 vehicles in the January-May period. In an ill omen for the broader economy in May, car and truck production fell 14% that month from the previous year.
OJF forecasts a 2.5% drop in economic activity in May as a record soybean harvest failed to offset weakness in the industrial sector. Government data for that month won’t be published until late July.
Shane Romig contributed to this article.
Corrections & Amplifications
This item was corrected on June 30, 2014 at 2220 GMT to reflect that Argentina’s government said that its monthly economic-activity indicator contracted 0.5% from April 2013. The original version incorrectly reported the indicator contracted that amount from April 2014 in the second paragraph.
30 Jun 2014 18:31 ET Correction to Argentina Economy Stages April Uptick Story
Argentina’s government said that its monthly economic-activity indicator contracted 0.5% from April 2013. “Argentina Economy Stages April Uptick, Fails to Dispel Recession Fears,” at 5:10 p.m. ET, incorrectly reported the indicator contracted that amount from April 2014 in the second paragraph.
19. ARGENTINA OK’S GENZYME’S MS DRUG (The Boston Globe)
By Chris Reidy
1 July 2014
Genzyme said Monday that regulators in Argentina have approved Lemtrada, its drug for adult patients with relapsing multiple sclerosis.
The treatment, which has not yet received regulatory approval in the United States, has won support in the European Union and nations such as Mexico, Australia, and Canada.
More than 2.3 million people worldwide have been diagnosed with MS, including approximately 8,000 people in Argentina, Genzyme noted in its press release.
Genzyme’s application for US approval was rejected by the Food and Drug Administration in December. At the time, the FDA called into question the integrity of clinical trials and cited the risk of potentially serious side effects. In May, Genzyme said it had resubmitted the application after discussing the outstanding issues with the agency.
The potential for Lemtrada was among the reasons why French drug giant Sanofi SA acquired Cambridge-based Genzyme in 2011 for $20.1 billion.
As part of that deal, Sanofi agreed to reward former Genzyme stockholders if the drug achieved certain milestones in the US market regarding approval and sales.
20. JURGEN KLINSMANN’S YODA — CESAR LUIS MENOTTI’S AGGRESSIVE IDEAS HAVE INSPIRED COACHES ALL OVER, INCLUDING THE U.S.’S (The Wall Street Journal)
By Jonathan Clegg
1 July 2014
The U.S. national soccer team’s dramatic run to the 2014 World Cup knockout round has thrilled and captivated Americans across the length and breadth of the country.
But some 5,000 miles away, in a quiet corner of Buenos Aires, it has also brought a glimmer of satisfaction to an elderly Argentine with wild gray hair, thick sideburns and a profound craving for cigarettes.
His name is Cesar Luis Menotti, and to soccer fans world-wide, he is known as the charismatic, chain-smoking coach who led Argentina to its first World Cup triumph in 1978. Less known is the role he has played nearly four decades later as tactical guru, inspirational mentor and coaching swami to U.S. coach Jurgen Klinsmann.
As the Americans face Belgium on Tuesday for a spot in the quarterfinals, their progress in Brazil owes an outsize debt to a 75-year-old coach known as El Flaco (the thin one).
For more than 40 years, Menotti has been the standard-bearer for a wide-open brand of attacking soccer. His central belief is that the key to victory isn’t defensive organization or keeping hold of the ball, but trying to score as many goals inside 90 minutes as humanly possible.
His ideas have influenced the likes of Jorge Valdano, Marcelo Bielsa and Pep Guardiola, who made a pilgrimage to Argentina to visit Menotti before becoming head coach at FC Barcelona.
But Klinsmann may be his most devoted disciple. Ever since he played under Menotti during a brief spell at the Italian club Sampdoria in 1997, Klinsmann has been a champion of his attack-attack-attack vision of the game.
During his coaching career, he has sought out Menotti’s advice. In separate stints with Bayern Munich and the U.S. team, Klinsmann hired Martin Vasquez, one of Menotti’s former players, to be his assistant coach.
“Every coach I worked with had an influence on what I am doing today,” Klinsmann said, “and I had some phenomenal coaches.”
It is no exaggeration, though, to say that nearly every aspect of Klinsmann’s coaching philosophy bears the imprint of Menotti.
“There was this chemistry between the two of them,” said Danny Dichio, a teammate of Klinsmann on Menotti’s Sampdoria squad. “With Menotti, it was a whole new approach, not just tactically, but even down to the training. Jurgen was like a sponge.”
As Germany’s coach in the mid-2000s, Klinsmann transformed a squad long known for its defensive style of play into a fast, freewheeling side that racked up 14 goals in seven games and reached the semifinals of the 2006 World Cup.
Granted, no one is going to confuse Klinsmann’s U.S. team with the Argentina squad that Menotti guided to World Cup glory. But there are signs that the same positive style of play is taking hold.
In its opening two games here against Ghana and Portugal, the U.S. had 23 shots and scored four times. “He has the wish to create an offensive team,” said Mario Kempes, a member of Argentina’s 1978 team, of Klinsmann. “It’s difficult because he can only use the players that he has at his disposal, but you can see the idea is there.”
Even Klinsmann’s commitment to developing a distinctly American style of play evokes Menotti, whose success in the 1970s came from blending modern concepts and techniques with a traditional Argentine brand of soccer known as La Nuestra.
“This is the key for Menotti,” says Kempes, now an analyst for ESPN. “You can only succeed by playing in the way which comes naturally to you. For Argentina, this means quick passes, running with the ball and scoring goals.”
The shared belief in the benefits of attacking soccer is far from the only link to Menotti. His influence also extends to Klinsmann’s work on the training field.
In a sport usually seen as free-flowing and spontaneous, Menotti introduced the idea of pre-rehearsed moves to the training field. His drills involved endlessly repeating specific patterns of play, which were invariably designed to spread the ball out wide and get as many players as possible charging into the penalty box.
Brad Evans, a U.S. midfielder, said Klinsmann has brought those same sequences to Team USA training sessions. “There’s six or seven [patterns] that we work on in any given day,” he said. “And the big thing with those pattern plays is getting a late runner in the top of the box and making sure we’ve got numbers in the box.”
On some occasions, Klinsmann has even turned to Menotti for tactical pointers ahead of a key game.
On the eve of Germany’s round-of-16 showdown with Sweden at the 2006 World Cup, Menotti met with Klinsmann and advised him to instruct midfielder Torsten Frings to fall back into the defensive line to combat Sweden’s dangerous counterattack. Germany dominated the game and won 2-0 as Sweden managed just two shots.
The success of the U.S. team under Klinsmann is in some ways a vindication for Menotti, whose attacking philosophy fell out of favor as defensive soccer took hold of the game more than two decades ago. Despite leading Argentina to its first World Cup and the under-20 championship 12 months later, Menotti was fired after failing to advance beyond the second round at the 1982 tournament in Spain.
He returned to club soccer and had brief stints at FC Barcelona, Atletico Madrid and Boca Juniors, but encountered little success. Menotti had surgery to remove a tumor on his lung in 2011 and he hasn’t coached again — or smoked again — since.
It isn’t known whether Klinsmann dialed up Menotti to exchange ideas ahead of this World Cup, but the Argentina coach surely would have had some useful advice.
Klinsmann kicked up a storm when he omitted Landon Donovan from his squad for the tournament, but it is unlikely that Menotti would have been impressed. In 1978, he was vilified in Argentina for his decision to leave out a 17-year-old named Diego Maradona. He was only forgiven when he lifted the trophy.
“This is one thing every coach can take from Menotti,” Kempes said. “If you win the World Cup, no one can criticize you.”

ARGENTINA SALVAJIZADA – Jun 17 & 18, 2014.

18 junio, 2014

WEDNESDAY,  JUNE 18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. ARGENTINA PLANS DEBT SWAP, HOPING TO SIDESTEP US (The Washington Post)
By Almudena Calatrava in Buenos Aires and Luis Andres Henao in Santiago, Chile
June 18, 2014
BUENOS AIRES, Argentina — The Argentine government plans to sidestep a U.S. court order that it repay defaulted bonds in full, saying creditors who accepted debt restructurings will be offered new bonds to be paid in Argentina rather than the United States.
Economy Minister Axel Kicillof said Tuesday that the government is “starting to take steps to begin a debt swap” to service the country’s restructured debt in “Argentina and under Argentine law.”
The announcement came a day after the U.S. Supreme Court refused to intervene in a U.S. judge’s order that would deny use of the U.S. financial system to Argentina unless it first pays off holders of defaulted bonds who didn’t accept the earlier debt swaps. Argentina has objected to paying the “holdout” creditors.
The high court also ruled that the holdout bondholders who won the legal case could use U.S. courts to force Argentina to reveal where it owns property around the world.
The arrangement outlined by Kicillof would involve investors who previously agreed to swap government bonds that were defaulted on in Argentina’s 2001 economic collapse for new, less valuable bonds that the government has being paying on since 2005. Those new bonds are governed by U.S. law.
If Argentina were forced to pay off in full what the government calls “vulture funds,” the country could become an easy prey and would ultimately be “pushed into a default,” Kicillof said.
“Some say we should negotiate with vultures, but the vultures are vultures because they don’t negotiate,” he said. “If they were in conditions to negotiate, they would have done it like the rest of the bondholders.”
President Cristina Fernandez criticized the U.S. judge’s ruling requiring a $1.5 billion payment, of full value plus interest, to investors who didn’t accept the previous debt restructurings.
In a national address Monday night, she defiantly vowed not to submit to “extortion” by NML Capital and other investors that refused to trade in defaulted bonds. But she said her government “will not default on those who believed in Argentina” by accepting the debt swaps.
While conceding the Supreme Court’s decision was unfavorable, Kicillof kept the possibility of negotiation open, but said Argentina was not willing to “do anything, under any condition, to accept exorbitant conditions” to resolve the debt fight.
The court’s decision was a blow to Argentina’s aspirations to return to global credit markets after being shut out since its 2001-02 economic crisis and default.
Fernandez and her late husband and predecessor as president, Nestor Kirchner, negotiated or paid off most of the country’s defaulted debt. Argentina has paid its debt with the International Monetary Fund, and in May it agreed with the Paris Club of creditor nations on a plan to resolve $9.7 billion in debts that have gone unpaid since the economic collapse.
Bowing to the U.S. ruling would force Fernandez to betray a core value that she and her late husband promoted since they took over the government in 2003: Argentina must maintain its sovereignty and economic independence at any cost.
The president’s hard line on the U.S. ruling seemed to be a last effort to gain leverage ahead of a negotiated solution that both sides say they want.
With only days before a huge debt payment ordered by the court is due, many analysts and politicians say negotiations with the holdout investors are needed to avoid a new default and a blow to the country’s reputation.
“Another default can be quite costly economically and financially,” Alberto Ramos, Latin America economist for Goldman Sachs, said. “And the uncertainty and volatility that would generate would put added pressure on an already struggling economy, on the exchange rate, and therefore also on reserves.”
Standard & Poor’s Ratings Services on Tuesday lowered its long-term foreign currency rating on Argentina to “CCC-” from “CCC+.” The ratings agency cited a higher risk of default on Argentina’s foreign currency debt.
But Argentina’s Merval stock index, which had plunged 10 percent after Monday’s court decision, rebounded Tuesday and closed up 3.75 percent on hopes the government would announce a solution.
Daniel Kerner, an analyst at Eurasia Group, said the debt swap announced by Kicillof was probably meant to strengthen Argentina’s position in negotiations. But Kerner said a new debt swap would have to be agreed on quickly, or Argentina would risk missing a June 30 deadline for making payments on the existing bonds and falling in to default.
Still, he cautioned in an email statement that while Argentina wants to negotiate, it should be recognized that “the government is willing to default and has limits as to how much they can concede.”
2. ARGENTINA MOVES TO CIRCUMVENT U.S. COURT ON DEBT (The New York Times)
By Jonathan Gilbert and Peter Eavis
18 June 2014
The Argentine government said on Tuesday that it had started to take steps to circumvent a United States court order to avoid a technical default.
Axel Kicillof, the economy minister, said that the government would pay bondholders of restructured debt under Argentine legislation. ”We are taking the first steps to pay the debt in Argentina,” he said.
A majority of bondholders from Argentina’s $95 billion default in 2001 entered into debt exchanges in 2005 and 2010, taking haircuts of about 70 percent. But a small percentage of what Mr. Kicillof refers to as ”vulture funds” have held out for full payment.
On Monday, the United States Supreme Court rejected an appeal from Argentina over a ruling that obliges it to pay the holdouts and the holders of restructured debt at the same time.
Mr. Kicillof said the order, which forces Argentina to pay around $1.3 billion to the litigating holdouts, would be applied more widely. That, he said, meant the country would owe a total of $15 billion.
”It would set off a chain of payments that are unpayable,” he said. ”It would push us into a default.”
The economy minister echoed the defiant comments of President Cristina Fernández de Kirchner, who said on Monday that ”Argentina has no reason to be submitted to this kind of extortion.”
Mr. Kicillof accused the holdout creditors of wanting ”to ruin our restructuring. The vultures are vultures because they do not negotiate.”
”We will impede them,” he said.
Despite the bold declarations, Argentina will most likely find it hard to evade the ruling of the United States courts. The large international banks that handle bond payments have already stated that they will not do anything that could put them in contempt of the American courts.
Dollar payments, even those handled by foreign banks, typically end up being routed through New York, making such flows also vulnerable to the United States courts.
”Even if Argentina is willing to behave like an international pariah, it’s got to find financial intermediaries who are not subject to the court’s reach,” said Mark Weidemaier, an associate professor of law at the University of North Carolina at Chapel Hill. ”I have yet to hear the details of any plan that would effectively get around the injunction.”
Mr. Kicillof’s comments that the government was working on plans to pay the exchange bonds under local law may also present challenges. It is not clear how the bondholders would get their money out of Argentina without using third-party foreign banks that have already made it clear that they will obey the United States ruling. Argentina might try to change the terms of the bonds to make payments in its own currency, the peso, but the exchange bondholders might oppose such a change.
”It would be very difficult to find banks who would be willing to participate in a scheme to violate the U.S. court’s order,” said Joshua Rosner of Graham Fisher & Company, in New York.
Still, some legal specialists have said there might be a sliver of room for maneuvering. They note that the United States court ruling does not explicitly aim at the holders of the exchange bonds. As a result, if those investors were somehow able to get their money without using large international institutions, the American courts and the hedge funds might not, in fact, go after the exchange bondholders.
More risky for Argentina is that any attempt to circumvent the court order could prevent Argentina from regaining access to the global lending markets from which it has been locked out since the 2001 default.
The country’s foreign reserves have fallen to critically low levels. They have plunged from $53 billion in 2011 to just $29 billion today. That forced the government to devalue the peso, Argentina’s currency, by nearly 19 percent in January.
On Tuesday, the ratings agency Standard & Poor’s cut its rating on Argentina another two notches to triple C–, citing an increased risk of a default.
This is a more complete version of the story than the one that appeared in print.
Axel Kicillof, the Argentine economy minister, said a Supreme Court order on paying bond holdouts could push it into default.
3. ARGENTINA PLANS DEBT SWAP — MOVE APPEARS TO CIRCUMVENT U.S. COURT RULING, LEAVES DOOR OPEN FOR NEGOTIATION (The Wall Street Journal)
By Ken Parks and Nicole Hong
18 June 2014
Argentina unveiled a controversial plan aimed at preventing the country’s second default in 13 years, while hinting it was willing to negotiate with holdout creditors.
The moves, announced by the country’s economy minister in a televised address on Tuesday, would enable Argentina to escape a U.S. court ruling that requires it to start making payments to the creditors, something it has resisted for years. Argentina has until the end of the month to reach a deal with the holdouts and avoid defaulting on some of its bonds.
Under the plan, Argentina would swap its existing bonds that are governed by U.S. law for debt that falls under its own jurisdiction, Economy Minister Axel Kicillof said. Such a switch is unprecedented in sovereign-bond markets. While the decision was largely anticipated as a possibility, many lawyers and investors said they have yet to figure out how Argentina could go about making such a change and what such a move would mean for bondholders.
For a start, investors would likely have to give up their rights under U.S. law, such as suing in the nation’s courts, and the security of having payments processed by a U.S. bank. On the flip side, they would continue to receive income from Argentina’s bonds, which are among the world’s highest-yielding debt.
On Monday, the U.S. Supreme Court rejected Argentina’s appeal of a lower-court ruling that required Argentina to pay hedge funds that refused to go along with a debt restructuring after the country’s 2001 default. Argentina has refused to pay the holdout creditors, which are owed at least $1.5 billion. The lower U.S. court ruled Argentina can’t keep paying its other bondholders without also paying the holdouts. The next payment to those bondholders is due at the end of the month.
For years Argentina has been locked in a bitter battle with the holdout hedge funds led by Elliott Management Corp. affiliate NML Capital Ltd. and Aurelius Capital Management LP. On Monday, President Cristina Kirchner labeled their actions as “extortion.”
However, Mr. Kicillof indicated that Argentina may be willing to reach a deal with the holdouts. Mr. Kicillof said the government will ask its lawyers to meet with U.S. District Judge Thomas Griesa, who made the original ruling requiring that holdouts get paid.
“The most important and most positive thing the minister said was that Argentina is sending its lawyers to talk with Judge Griesa to try and solve this problem,” said Federico Tomasevich, chairman of Puente, an investment bank and brokerage in Argentina.
NML declined to comment. Aurelius didn’t respond to a request for comment.
Still, the unusual nature of Argentina’s plan and its history of acrimony with the holdout hedge funds, as well as its previous default, have unnerved some investors. Some believe that despite Mr. Kicillof’s seemingly conciliatory comments, Argentina may still end up defaulting.
Investors and analysts said that no government has attempted to switch a bond’s legal jurisdiction before.
“What they’re going to attempt to do is very challenging,” said Jorge Mariscal, emerging-markets chief investment officer at UBS Wealth Management, which manages $1 trillion in assets. “It would be extremely unusual for Argentina to get away with something like this.” Mr. Mariscal has been recommending that his clients avoid Argentine bonds.
Argentina’s bond prices steadied Tuesday after falling sharply following Monday’s Supreme Court action. Bonds due in 2033, which were the most severely hit on Monday, were trading at about 74.24 cents to the dollar late Tuesday from about 75 cents Monday and about 84 cents on Friday, according to traders.
However, the price of insuring Argentina’s debt continued to rise, indicating fears of a default. Meanwhile, Argentina’s Merval stock index rose 3.8% on Tuesday, with the market closing before the government’s announcement, after falling 10% a day earlier.
Argentina has $54.8 billion in outstanding bonds that could be directly affected by the developments.
On Tuesday, Standard & Poor’s Ratings Services downgraded Argentina’s debt to triple-C-minus with a negative outlook, three notches above default, from triple-C-plus.
The case has been closely watched by investors, academics and activists because of the risk it could lead to another Argentine default and the possibility of setting a legal precedent that could have global implications.
On Tuesday, the International Monetary Fund reiterated its warning that Argentina’s legal defeat could undermine future sovereign-debt restructurings by other governments.
Moving the restructured bonds out of New York’s jurisdiction and into Argentina’s legal system would mean that a substantial majority of bondholders need to agree to the switch to trigger a clause that forces all bondholders to get on board.
U.S. courts could view any bondholder who agrees to Argentina’s offer as helping the country evade the court judgment. That would open these investors to legal repercussions, analysts said. Those risks may also prevent global banks with U.S. subsidiaries from transferring Argentina’s payments to bondholders, who would instead be forced to use Argentine banks, which offer fewer protections for investors.
4. DON’T CRY FOR THEE, ARGENTINA; THE BUENOS AIRES DEADBEATS LOSE 7-1 AT THE SUPREME COURT (The Wall Street Journal Online)
17 June 2014
On one side are U.S. investors and the rule of law, and on the other are Argentinian deadbeats and their pals in the Obama Administration. Muchas gracias, the second group lost big at the Supreme Court on Monday in a 7-1 rout.
In 2001 Argentina defaulted on about $95 billion in sovereign bonds and restructured by offering to swap in new notes that paid about 33 cents on the dollar. Most creditors took the haircut but some preferred to settle up in the legal system, relying on an explicit covenant that disputes would be resolved in New York under New York law.
Buenos Aires lost in district court and on appeal. A subsidiary of Paul Singer’s Elliott Management called NML Capital, which is owed some $2.5 billion in principal and back interest, and other bondholders are chasing their Argentine money around the globe, wherever they can find it.
The creditors are seeking information via subpoena about world-wide Argentinian assets from U.S. banks and an Argentinian bank that does business in the U.S. Buenos Aires and President Obama’s legal gringos claimed that such discovery violates a 1976 law called the Foreign Sovereign Immunities Act, which protects some but not all forms of national property on American soil from private seizure and other legal obligations.
In Republic of Argentina v. NML Capital, the majority rightly held that simply because some assets are immune doesn’t mean that all assets are somehow exempted from third-party bank record discovery. Separately on Monday, the Court also denied without comment an appeal related to Argentina’s bid to discriminate among its creditors, another violation of the original bond issue.
Argentina’s U.S. Treasury amigos claimed that forcing Argentina to make good could trigger a financial crisis or another default. “These apprehensions are better directed to that branch of government with authority to amend the Act,” Justice Antonin Scalia dryly observed for the majority.
As a debt recidivist, Argentina may find it easier to finance its bonds if the money markets think the country will honor investor property rights, even if enforced by a judge. The Court has in effect ruled that a contract is a contract, upholding the norms that allow the international economy to operate.
 5. A RULING TO RESHAPE THE WORLD ECONOMY (The Christian Science Monitor)
By the Monitor’s Editorial Board
17 June 2014
Ever since the Great Recession, nations have worked hard to bring some durable harmony in the global economy. On Monday, the highest court in the United States offered a pillar for that project.
The Supreme Court ruled that a nation-state, in this case Argentina, cannot violate a core principle of finance by treating its investors unequally. A sovereign power, in other words, must live by the same moral rules as individuals or companies.
The landmark legal decision should help bring better discipline and fairness to the world of high finance. It helps shatter the notion that a state has an inherent right to violate a contract to repay its debts, as Argentina argued. Instead, a state must treat all creditors with the same neutral respect as given to individuals, a concept based on the inviolability of their dignity.
Argentina defaulted on nearly $100 billion of debt in 2002. Because some of the debt was sold under New York law, it faced a court challenge after it settled with only some creditors in 2005 and 2010. A few “hold out” creditors sought better repayment terms as well as equal treatment.
The ruling could now force Argentina to either default again or negotiate a new agreement with all creditors. But the most promising effect may be that the ruling pushes countries to internalize the concept of equal treatment in finance and forces states to abide by the same laws as other entities.
The idea that there are universal principles applicable to all – regardless of national identity – has been the basis for the growth of international law over the past century. But despite such laws, enforcing them has been difficult if a nation puts its own interests first rather than upholding this emerging system.
In a second ruling Monday, the Supreme Court gave approval for Argentina’s aggrieved creditors to seize some of the country’s overseas assets as a form of repayment. In the past, a country that defaulted on its financial obligations was punished mainly by being excluded from financial markets or forced to pay high rates. That law of the jungle may now be replaced by rule of law if this ruling becomes the norm.
Coercion, however, is not the best way to persuade nations to buy into international norms. Rather, each country must also learn that the principles that drive a healthy global economy are also good for their domestic economy. What’s right everywhere, is right in Buenos Aires.
The US Supreme Court tells Argentina that its sovereignty as a state is not above the principle of treating creditors equally in a bankruptcy. The decision helps set a moral norm that can boost the global financial system.
6. ARGENTINA VOWS TO CONTINUE FIGHT AGAINST ‘VULTURE FUNDS’ (Financial Times)
By Ed Stocker in Buenos Aires
June 18, 2014
Argentina’s economy minister Axel Kicillof said he wanted to restructure debt held by foreign creditors under local law and the country would continue its fight against so-called “vulture funds”.
Mr Kicillof, speaking at a press conference a day after President Cristina Fernández delivered a 25-minute nationally broadcast speech arguing her government would not succumb to “extortion”, said the country was prepared to take the necessary steps to make sure it could honour commitments to its creditors.
His comments underline Buenos Aires’ increasingly frantic efforts to avoid being pushed into a sovereign default by the end of June after the US Supreme Court on Monday refused to overturn a New York district court ruling ordering the country to pay billions of dollars to some of its creditors.
The Supreme Court decision in effect means that Argentina has to repay $1.5bn to “holdout” investors, led by hedge funds Aurelius Capital Management and NML Capital, a unit of billionaire Paul Singer’s Elliott Management Corp, at the same time as it services its restructured debt. A payment on the restructured debt of nearly $1bn falls due by June 30.
Mr Kicillof said the country would also send lawyers to speak to Thomas Griesa, the judge behind the New York district court ruling.
“If Griesa’s sentence is implicated . . . and Argentina has to pay the vulture funds, this would push Argentina into a default,” Mr Kicillof said, adding the funds were ruining government efforts made with debt restructuring programmes in 2005 and 2010.
Mr Kicillof and cabinet chief Jorge Capitanich are due to meet in Congress to discuss the implications of the Supreme Court ruling on Wednesday, with the opposition expected to call for the government to avoid a default.
“The question is whether Argentina wants to return to international markets or not,” said Fernando Navajos from the Foundation for Latin American Economic Investigations in Buenos Aires.
On Tuesday, Argentina’s sovereign credit rating was cut two notches by Standard & Poor’s.
S&P lowered its rating to ‘CCC-’ from ‘CCC+’ and maintained a negative outlook, citing the Supreme Court decision.
Analysts with the rating agency said they believed the outcome “raises the risk of payment interruptions”.
7. ARGENTINA REFUSES TO SUBMIT TO ‘EXTORTION’ ON DEBT (Financial Times)
By Ed Stocker in Buenos Aires, John Aglionby in London and agencies
June 17, 2014
President Cristina Fernández of Argentina has raised the prospect of a sovereign default, saying that her government could not succumb to the “extortion” of a US Supreme Court decision that orders it to repay $1.5bn to “holdout” investors before servicing its restructured debt.
In a 20-minute nationally broadcast speech on Monday, Ms Fernández said she was willing to negotiate but Argentina could not pay a group comprised mostly of hedge funds by June 30.
The president said she was willing to continue repaying the restructured debt, but the US Supreme Court on Monday said Buenos Aires had to pay $907m to the investors who had not joined restructuring programmes or lose the ability to use the US financial system to pay an equal amount due by June 30 to holders of other Argentine bonds.
“What I cannot do as president is submit the country to such extortion,” Ms Fernández said.
The president gave no details on how she would continue to pay the more than 90 per cent of bondholders who agreed, in 2005 and 2010, to a more than 70 per cent haircut on their loans after Argentina defaulted on $100bn of debt in 2001-02. She said she had told her economy minister to set up “all the tools needed to make the payment to those who trusted in Argentina”.
Ms Fernández said the total owed to the plaintiffs was $1.5bn including interest, and paying it all immediately in cash in the way that the courts had ordered could trigger another $15bn in other cash payments to the remaining holders of defaulted debt. That “is not only absurd but impossible”, since it represents more than half the central bank’s remaining foreign reserves, she said.
“It’s our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators,” Ms Fernández said.
The holdout investors fighting the legal battle, which Ms Fernández described as “vultures”, are led by hedge funds Aurelius Capital Management and NML Capital, a unit of billionaire Paul Singer’s Elliott Management Corp.
During her address, Ms Fernández said NML’s practices were unethical; she said it bought the bonds in 2008 for $48.7m and in 2014 alone saw them gain 1,608 per cent.
“I don’t even think that in organised crime there is a return rate of 1,608 per cent in such a short time,” she said.
The judges not only rejected Argentina’s appeal – they also ruled 7-1 that bondholders could force Argentina to reveal where it owns property around the world. That could make it easier to collect on other debts that have gone unpaid since Argentina’s economy collapsed.
Justice Antonin Scalia wrote that US federal law offered no shield to Argentina’s assets. Justice Ruth Bader Ginsburg was concerned that this could expose even Argentina’s embassies and military ships to seizure if the government does not pay.
Argentina’s Merval stock index dropped 11 per cent after the court decision, its largest one-day loss in more than six months. Share prices for the state-run YPF energy company fell nearly 13 per cent, while the Edenor electricity utility fell 20 per cent.
The cost of insuring Argentine bonds against default soared, and the value of Argentina’s currency fell to 12 pesos to the dollar on the black market, implying a 33 per cent loss to anyone needing to buy foreign currency legally.
Argentina has hinted it might consider negotiating with holdouts but could not do so until after December 31, when a clause in its debt swaps prohibiting it from offering holdouts better terms expires.
Whether Argentina can keep stalling investors and US courts until that date remains to be seen.
The International Monetary Fund has said it is worried that the rulings against Argentina could make it more difficult for other countries to restructure their debt and put financial calamity behind them.
“This is surprising because it is giving a precedent for any ‘vulture fund’ to go against any country, so any country is vulnerable in a restructure,” Sebastian Centurion at ABC Exchange told Reuters.
But other analysts believe collective action clauses now broadly used in sovereign debt issuance should prevent Argentina’s case becoming a precedent, and there was little reaction in other emerging markets to the Supreme Court decision.
8. ENDING ARGENTINA’S LENGTHY BOND BATTLE (Financial Times)
June 17, 2014
US ruling leaves Buenos Aires with no choice but to settle
After Argentina’s default in 2001, most of its creditors eventually accepted a restructuring. But two hedge funds, Elliott Management and Aurelius Capital, fought a long legal battle to be repaid in full. The Argentine government always vowed that it would never settle with those it calls “vulture funds”.
A decision this week by the US Supreme Court may force an end to this near decade long war of words. The justices upheld a lower court decision from 2012 that equal treatment required Argentina to pay the holdouts in full if the restructured bonds are honoured.
Unless the government pays back $1.5bn it owes the hedge funds, it will be illegal for it – and also for intermediaries – to fulfil Argentina’s commitments to restructured bondholders. This could plunge the country into a fresh sovereign default.
The ruling leaves Buenos Aires with no easy options. Default would reinforce Argentina’s pariah status with the capital markets, denying the country the investment it needs to renew its infrastructure and develop its vast hydrocarbon reserves. Belatedly, Buenos Aires has been trying to repair its tattered reputation with international institutions such as the Paris Club and the International Monetary Fund. Flouting the ruling would throw this hard work in the bin.
There is even the humiliating possibility of the hedge funds seizing Argentine assets in foreign jurisdictions to settle their claim. The court also ruled the bondholders could force Buenos Aires to reveal where it owns property round the world.
However, settling is scarcely more palatable. Paying the hedge funds would expose Argentina to further claims it estimates are worth some $15bn from other holders of defaulted debt, who benefit from the suit even though they were not party to it. Then there is the possibility of additional compensation claims from restructured holders under a term of the bond exchange. This clause – ticking away like a bomb at the heart of the agreement – expires at the end of this year.
This has never been an edifying dispute. There is little truth to the holdouts’ claim that the government strong-armed creditors into accepting a uniquely savage haircut worth 25 cents on the dollar. In fact, if warrants linked to gross domestic product growth are taken into account, the payout has in some cases been double that. Of more systemic concern is the fact that points of law in the hedge funds’ favour have led to a situation where their victory potentially makes it easier for other holdouts to block future sovereign restructurings.
It is nonetheless hard to cry for Argentina. The original bonds could have prevented this outcome. But they did not include collective action clauses, which allow a large majority of creditors to bind holdouts to a restructuring.
President Cristina Fernández of Argentina has not helped matters by elevating the battle with the hedge funds into a personal political crusade. This has achieved little other than to disguise the generosity of Argentina’s treatment towards the restructured holders. Her histrionics, meanwhile, have scared away foreign investors. As a result, 13 years after its $100bn default, Argentina remains much poorer than it should be.
There are lessons here for international borrowers. CACs should be standard in all new bonds. What to do about existing debt is harder, but Congress could modify the law to deal more sensibly with US law-governed sovereign debt.
As for Argentina, there is little point in accusing the US of colonialism and the hedge funds of extortion. The judges are applying the law. Buenos Aires needs to hold its nose and cut a deal with the holdouts that minimises the cost of defeat to its people. After nine years, the clock is ticking fast.
9. ARGENTINA’S BOND SAGA: KICILLOF SPEAKS (Financial Times)
By Ed Stocker
June 17, 2014
Tuesday’s event in Argentina’s fast-unfolding debt saga will be a press conference by Axel Kicillof , economy minister, at 6 pm local time in Buenos Aires. Perhaps he will add something of substance to the curiously ambiguous TV address on Monday night by Cristina Fernández, the country’s president.
Fernández pulled no punches in attacking the ‘vulture funds’ who were the winners from Monday’s ruling by the US Supreme Court. But she also left the door open for negotiation. As is often the way, the president took free rein to present herself as a promoter of a new world order, in defiance of US and UK hegemony, while the reality is a little different.
For Miguel Kiguel, a Buenos Aires-based economist and former World Bank advisor, “One has to distinguish between the rhetoric and the substance [of her speech]. If you listen to the rhetoric, it was just attacking the vulture funds, but when you look at the substance, by the end of it she kept all options open.”
Martin Redrado, a former governor of Argentina’s central bank, told a local TV station that Tuesday was a day “to calm the waters” and that a solution could still be found – although the government had yet to work one out.
“Today, what’s at play is Argentina,” he said. “There are few dollars in the economy and too many pesos that are devaluing. [The government] doesn’t need the money to speculate. They need it for factories.”
Fernández has been taking a less confrontational stance as she eases towards the latter stages of her second mandate and begins to think about her succession. Will it be a question of leaving with all guns blazing or of clearing the path for what she hopes will be a victorious candidate from her Justice Party (PJ) in 2015?
“She was very critical of YPF/Repsol and in the end the government found a solution and paid,” notes Kiguel. “So in a way it’s a question of whether she tries to be more pragmatic or takes the ideological route – which some people call her identity – and take a confrontational attitude, which would be very complicated for an economical and financial point of view.”
With the economy stumbling, inflation high and foreign exchange reserves dwindling, Argentina can ill afford any further erosion of its image and its credit-worthiness. Regaining access to capital markets as soon as possible must be a top priority.
Kiguel expects the government to try and buy time and avoid being held to the looming June 30 coupon payment. “Argentina needs the stay to remain in place and that’s probably doable. And after that they will probably look for a way to negotiate – that is the only realistic way Argentina can avoid a default and still pay exchange bondholders.”
For now, there hasn’t been much detail from the government on its next move. Kicillof may shed more light. But it is already clear that Argentina simply doesn’t have the same ability to pay – in cash anyway – as it did two years ago when the original US ruling was made. Ironically, that may make it easier for Buenos Aires to negotiate in good faith.
10. PAUL SINGER: ARGENTINA’S NEMESIS IS A TENACIOUS TACTICIAN (Financial Times)
By Stephen Foley in New York
June 17, 2014
Paul Singer has previous form when it comes to using international courts to insist that sovereigns stand by the debt commitments they have made.
His hedge fund Elliott Management first earned its controversial reputation when it sued Peru in the 1990s, demanding it made good on bonds that Elliott had purchased for a fraction of face value. The aggressive tactics were on show again a decade later against the Republic of Congo and finally in the landmark case against Argentina which the hedge fund won on Monday.
Mr Singer, 69, whose professorial demeanour belies a steely streak, is unapologetic in the face of being labelled a vulture. The opposite: he argues that countries should honour their debts. Not doing so often speaks to a wider corruption that is likely to be harming citizens even more than bondholders, he says.
What has made Mr Singer stand out is the creativity and tenacity of his hedge fund’s international legal strategies, tactics rooted in his training as a lawyer.
After reading psychology as an undergraduate at Rochester, he went to Harvard Law School and began a legal career on Wall Street. On the side he was always investing his family’s money, though, and began to do that full-time with the foundation of Elliott in 1977.
That start date makes Elliott one of the oldest hedge funds. From humble beginnings managing $1.3m of family money trading convertible bonds, the company has become one of the most eclectic, unpredictable and largest funds in the industry. It employs more than 320 people and manages $24bn, and has branched from distressed debt into other areas of activism, including demanding changes at public companies such as Procter & Gamble and in the tech sector.
Mr Singer, who counts former presidential candidate Mitt Romney among Elliott’s investors, has parlayed his fortune into a major role as a donor to Republic causes, bankrolling political action committees that support mainstream Republican candidates and, in a personal and high-profile campaign, gay marriage.
His son is gay and wed his husband in Boston in 2009. Mr Singer’s American Unity organisation has helped nudge numerous Republican candidates into supporting gay marriage, something the hedge fund boss called “a profoundly traditionalising habit”.
In politics as in business, Mr Singer is an activist, but he insists that does not always mean being aggressive. Just when needed.
“Others take delight in being difficult,” he told the Financial Times in 2006. “I believe in the judicious use of our analytical abilities and reserving obstinacy for when it is really needed. We sometimes write beautiful letters in which we are polite and sweet.”
11. ARGENTINA PLANS DEBT SWAP TO SKIRT ORDER TO PAY HOLDOUTS (Bloomberg News)
By Charlie Devereux and Camila Russo
Juen 17, 2014
Argentina will seek to move its overseas bonds into local jurisdiction to skirt a U.S. court ruling forcing it to pay holders of defaulted debt in full.
The swap will ensure holders of restructured bonds keep getting paid while allowing Argentina to avoid complying with the U.S. ruling, Economy Minister Axel Kicillof told reporters yesterday. Cabinet officials will meet with lawmakers today to discuss how to shift investors into local-law bonds, he said.
“Everyone stay calm,” Kicillof said in a nationally televised press conference. “This has been studied extensively so that the reconstruction of Argentina isn’t jeopardized.”
Officials overseeing South America’s second-largest economy say the nation doesn’t have sufficient reserves to pay what they estimate could be $15 billion of claims from holders of defaulted bonds that didn’t participate in two debt exchanges following the country’s 2001 default. After the U.S. Supreme Court said June 16 it wouldn’t consider the case, Argentina is bound by a U.S. District Court ruling that it can’t make interest payments to holders of restructured international bonds without paying the defaulted notes as well.
“If the government doesn’t modify its current strategy, Argentina is on the path to firstly be in contempt of New York’s courts and then to enter into default on all of its debt,” Luis Secco, the director of Perspectiv@s Economicas in Buenos Aires, wrote in a report.
Following the record $95 billion default 13 years ago, Argentina in 2005 offered to exchange its defaulted securities with bonds worth about 30 cents on the dollar and made a similar proposal in 2010. Owners tendered about 92 percent of the outstanding debt.
Grace Period
An interest payment of $907 million on restructured notes is due on June 30. To avoid suspending payments, Argentina will ask bondholders to swap debt sold under New York law into securities governed by Argentine legislation and therefore not subject to U.S. court orders.
If the government doesn’t make the interest payment on the restructured notes this month, the bonds will be in default after a 30-day grace period.
Disobeying the court order could push the country into a technical default and further isolate an economy that’s already experiencing slow growth and high inflation, said Mauro Roca, a senior Latin America economist at Goldman Sachs Group Inc.
“Of the possible scenarios, this was the most adverse,” Roca said in a telephone interview from New York. “Until the moment that they miss the June 30 payment and the 30 days of grace has passed, I’m reluctant to say they’ll default. But they’re certainly heading that way.”
International Reserves
Argentine bonds have plunged 10.3 percent since the Supreme Court denied the appeal, according to JPMorgan Chase & Co. The extra yield investors demand to own Argentine bonds over Treasuries widened 0.23 percentage point yesterday to 8.73 percentage points. That’s the highest borrowing cost in emerging markets after Venezuela.
Kicillof said that complying with the U.S. ruling would jeopardize the country’s ability to honor the restructured debt, since paying the plaintiffs the $1.5 billion they say they’re owed would trigger demands from other holdout creditors for similar terms. The estimated $15 billion in claims amounts to more than half Argentina’s international reserves.
Central bank reserves, which the government uses to pay its debt, have fallen 25 percent in the past year to $28.8 billion. In March, Argentina’s economy contracted for the first time since September 2012 as the government implements policies to stem a drain on central bank funds. Consumer prices rose an accumulated 12.9 percent in the first five months of the year.
Attorney Meeting
Standard & Poor’s yesterday downgraded Argentina to CCC-, nine levels below investment grade, citing the court ruling.
“A default or a distressed debt exchange pertaining to currently-serviced debt appears to be inevitable within six months,” S&P said in an e-mailed statement yesterday.
Argentina will send its attorneys to speak with U.S. District Judge Thomas Griesa, who wrote the ruling favoring holdout creditors, to seek ways to avoid a default, Kicillof said.
The plan to meet with Griesa is a sign that the government may still be considering a negotiated settlement with the holdouts, according to Alejo Costa, a strategist at Buenos Aires-based brokerage Puente Hermanos Sociedad de Bolsa SA.
Kicillof said the government wouldn’t allow hedge funds to sabotage its efforts to rebuild the country after the debt crisis in 2001. He referred to the holders of defaulted bonds as “vultures” because they seek to profit by buying distressed assets.
“Some people say that we need to negotiate with the vultures,” Kicillof said. “The vultures are vultures because they don’t negotiate. The vultures are vultures because they go to court to get the full total of their claims.”
12. S&P CUTS ARGENTINA RATING TO CCC- ON SUPREME COURT DECISION (Bloomberg News)
By Katia Porzecanski
June 17, 2014
Argentina’s credit rating was cut two levels by Standard & Poor’s after the U.S. Supreme Court yesterday declined to hear the country’s appeal of a ruling that may prompt a default.
S&P lowered the country’s rating to CCC-, nine levels below investment grade and the lowest rating for any nation that’s currently assessed by the company, according to an e-mailed statement today. S&P gave the rating a negative outlook reflecting the likelihood of a further downgrade on payment interruptions or a distressed debt exchange.
The U.S.’s highest court rejected Argentina’s request to appeal a ruling that prevents the country from honoring its restructured debt without also paying holders of defaulted bonds from 2001 in full. Argentina has a $900 million coupon payment on restructured bonds due June 30 which will be blocked unless holdouts from the nation’s two debt restructurings, including Elliott Management Corp., are compensated.
“We would consider interruptions to debt that is currently being serviced as a new default,” said S&P. “A default or a distressed debt exchange pertaining to currently serviced debt appears to be inevitable within six months, in our view, absent unanticipated significantly favorable changes in Argentina’s circumstances.”
President Cristina Fernandez de Kirchner said Argentina won’t default on its restructured debt, while calling the court ruling to pay holdouts $1.3 billion “extortion.” Complying with the orders will prompt total claims on defaulted bonds to grow to $15 billion, an amount that’s “impossible” to pay with reserves hovering near an eight-year low, she said.
Argentine bonds plunged for a second day today after dropping 9.3 percent on average yesterday, according to JPMorgan Chase & Co. The extra yield investors demand to own Argentine bonds over Treasuries widened 0.34 percentage point to 8.84 percentage points at 3:24 p.m. in New York. That’s the highest borrowing cost in emerging markets after Venezuela.
S&P last downgraded Argentina in September, after the nation lost its appeal of the ruling in a U.S. Appeals Court.
13. ARGENTINA FLIRTS WITH DEBT SWAP AS FEAR OF DEFAULT RISES (Reuters News)
By Sarah Marsh and Alexandra Ulmer
17 June 2014
BUENOS AIRES, June 17 (Reuters) – Argentina is taking steps to place its restructured debt under local law so it can continue making payments despite a string of adverse U.S. court rulings, Economy Minister Axel Kicillof said on Tuesday as fears of default increased.
Under the move, Argentina would swap bonds that are governed by U.S. law for those governed by Argentine law, meaning they would no longer be subject to the U.S. courts.
“We cannot allow (holdouts) to prevent us from honoring our commitments to creditors,” Kicillof told a news conference. “For this reason we are starting the steps to start a debt swap to pay them in Argentina under Argentine law.”
The U.S. Supreme Court declined on Monday to hear an appeal by Argentina in its decade-long battle against hedge funds who refused to take part in its debt restructuring after its catastrophic 2001-02 default.
This left a lower court ruling intact ordering it to pay them $1.33 billion, something Argentina has vowed not to do.
It also set the clock ticking ahead of June 30, when the government is due to service restructured bonds. If a resolution is not found before then, Argentina would be barred by the U.S. court decision from making the payment, pushing the country into technical default 12 years after its devastating debt crisis.
Analysts said a new swap into locally governed bonds was a risky move that could also result in a technical default if Argentina did not manage to implement it before the end of the month or in the likely event that some investors refuse it.
“Essentially he’s saying Argentina is going to ignore the ruling,” said Ignacio Labaqui, analyst for consultancy Medley Global. “This is a fairly risky move … Still, they haven’t closed the door to negotiations.”
Kicillof said Argentina would also get its lawyers to speak with U.S. District Judge Thomas Griesa, in a last-ditch attempt to negotiate a solution to its dispute with hedge funds.
If Argentina complied with his ruling, this would open the door to claims from other holdout bondholders worth $15 billion that the country could not afford, Kicillof said,
“We are going to take the measures needed to be able to pay,” Kicillof told a news conference. “But we will also send our lawyers to talk to Judge Griesa to see what he is referring to when he says he isn’t pushing Argentina into a default with this ruling.”
Kicillof said Argentina had shown it wanted to normalize relations with foreign creditors and investors but would not accept “just any conditions.”
“Some say you have to negotiate with the vultures. But… vultures are vultures because they do not negotiate, because they go to the courts to obtain the total of their claims.”
Last month, Argentina’s lawyers sought to assure Griesa it would not evade his orders if the U.S. top court declined to hear its case. Kicillof’s comments on Tuesday suggested a tougher stance.
14. ARGENTINA FACES FEW OPTIONS TO ADDRESS DEBT HOLDOUTS (Market News International)
By Charles Newbery
17 June 2014
Amid Supreme Court Ruling, S&P Downgrade, Recession to Deepen
BUENOS AIRES (MNI) – In the wake of a disappointing U.S. Supreme Court ruling – followed by a ratings downgrade – Argentina faces few options but to negotiate a settlement with creditors seeking full repayment on up to $15 billion in defaulted bonds, a situation that could push the country deeper into recession, analysts said Tuesday.
President Cristina Fernandez de Kirchner got hit Monday with probably the biggest problem of her seven years in office, something that could tarnish her legacy.
The U.S. Supreme Court denied to hear an appeal against lower court rulings ordering the Argentina to pay back $1.5 billion to creditors holding bonds from a 2001 sovereign debt default totaling $100 billion. The creditors include U.S. hedge funds like NML Capital of American billionaire Paul Singer.
What to do? That is the big question that analysts and investors are mulling over in the wake of the decision.
In a speech to the nation Monday night, CFK alluded to the only possibility: negotiate.
But analysts warn that will not be easy.
“The government will have to figure out how to pay without collapsing the country in the process,” said Federico MacDougall, an economist at the University of Belgrano in Buenos Aires. “There’s very little money to negotiate.”
Argentina has been locked out of international financial markets since 2001, forcing it to rely on its foreign reserves for financing. The reserves, however, have tumbled to a seven-year low of $28 billion since hitting a peak of $53 billion in 2011, leaving little leeway to cover debt payments and imports let alone pay the defaulted bonds.
CFK said it would be “impossible” for Argentina to use about 50% of its reserves on what could potentially amount to $15 billion in payments of the debt still in arrears from the default, held by creditors who refused to participate in debt restructurings in 2005 and 2010.
She said a solution for these creditors is to exchange their defaulted bonds for new bonds. The catch, for the creditors, is that they must accept the same terms as the 92% of bondholders who agreed to take 30 cents on the dollar in the restructurings.
The holdouts, as they are called, have been betting on getting full repayment by suing Argentina in U.S. courts, which have jurisdiction over the bonds as they were issued under U.S. law.
CFK routinely calls these creditors vultures, saying Monday night they could make a 1,608% profit from the country’s downfall as they bought the bonds at as little as 20 cents on the dollar with the aim of getting back their holdings at 100 cents on the dollar plus penalties and interest.
“Not even in organized crime are there such returns,” she said.
There are two catches. First, if the government pays NML and the other holdouts in this suit then the others holding a total of $15 billion will come forward to sue for the same. The second catch is that it cannot voluntarily seek an out-of-court settlement with the holdouts because that would trigger a rights upon future offers clause from the restructurings, and entitle the participants to collect the difference, or as much as 70 cents on the dollar.
The me-too clause expires Dec. 31, 2014, leading analysts to say that Argentina will play for time so that it can negotiate next year with the holdouts.
But with the Supreme Court decision, CFK may not have that much time to wait.
A U.S. court already has told Argentina to pay the holdouts, but after an appeal a stay was issued on the payment until the Supreme Court could make a decision on the case.
Now that the decision has been made, NML could ask for the stay to be lifted so it can collect their $1.5 billion when Argentina makes its next debt payment in the U.S.
The next payment for $900 million on the restructured bonds is due June 30, and CFK said the money will be paid.
Richard Samp, chief council of the Washington Legal Foundation, said Monday that he expects the stay could be lifted “in a matter of days.”
Argentina can string out a payment to the holdouts by asking the Supreme Court to rehear its petition, a request it can make within 25 days of the first decision.
Samp, however, said “the Supreme Court never grants rehearing petitions,” meaning that the stay will likely be lifted even before the Supreme Court announces its denial on the rehearing.
“This is the end of the line for Argentina in the judicial appeal process,” Samp said. “It has nowhere else to turn.”
In response to the U.S. Supreme Court decision, Standard & Poor’s lowered its long-term foreign currency rating on Argentina to CCC- from CCC+, saying the ruling increased the “risk of payment interruptions on debt under New York law that is currently being serviced.”
And, it said, “The outlook on the long-term ratings is negative based on the potential for a payment interruption or a distressed debt exchange.”
S&P said a particular concern is Argentina’s capacity “to pay the plaintiff creditors while servicing its current debt,” adding that it expects a default or a distressed debt exchange “appears to be inevitable within six months.”
Analysts came away from CFK’s Monday night speech with differing opinions.
“The leader of a country should have a response to such a serious problem and not continue to ignore it,” Jorge Todesca, an economist at Finsoport, an economic consultancy in Buenos Aires. “Sooner or later this was going to happen.”
Others say the president opened the door to sit down for talks with the holdouts, probably behind closed doors.
“We think that her comments pointed to some sort of negotiation,” said Jorge Piedrahita, CEO of Torino Capital, a New York-based investment bank and broker. “However, she showed a hard position because she doesn’t want to weaken her negotiation position.”
He said her pledge to avoid default on its restructured bonds are a sign the president will not resort to “the nuclear option” to resolve the situation.
But that raises a challenge. Argentina’s bond contracts include a pari passu clause that affords all creditors equal treatment. Based on this, the U.S. lower court ruled that Argentina cannot pay the restructured bondholders without also paying the holdouts at the same time. The holdouts can seize the proceeds of these payments.
This means that the government will have to find “a creative way” of paying the restructured bonds to avert an interception of the funds, such as by switching the location of collection to Argentina, Piedrahita said.
Argentina does have some room to negotiate, which is something that CFK seemed to suggest by saying that she will not “succumb to the extortion” of the holdouts.
Given the penalties and interest are so large on the defaulted bonds, “the holdouts could accept something less than the total amount claimed and still make a very large profit,” he said.
The alternative of a default on the totality of Argentina’s debts would put the holdouts back to “square zero” in collecting payment and slash the value of their holdings, he said.
“It is highly likely that Argentina will end up in a negotiated solution and pay in bonds,” he said. “I’m not sure that the holdouts will care that much if they are paid in bonds as long as they get paid something that they think is fair.”
The setback with the holdouts comes after the CFK administration took steps to return to international markets. It has settled lawsuits with foreign companies in a World Bank tribunal, cleaned up its inflation reporting, devalued the currency, raised interest rates and started to trim public spending.
It also reached $5 billion settlement with Spanish oil company Repsol for the 2012 expropriation of its controlling stake in the YPF energy company, and agreed to settle its $9.5 billion in defaulted debts with the Paris Club of creditor nations.
This left the holdouts as the last major challenge to selling bonds overseas again.
Until the holdouts situation is resolved, the economy likely will fall further into recession, with most estimates suggesting ahead of the Supreme Court decision a 2% contraction. Investment will stagnate, the government will struggle to find financing and high interest rates will deter investment. Credit will remain limited and pressure will increase on the peso, raising the
possibility of a repeat of January’s 20% devaluation, said Finsoport’s Todesca.
“The recession will be sharper than we had expected,” he said.
This puts the president in a pickle. With 15 months left in her second and final term, CFK was taking steps to return to global markets to end her presidency on a good note so that she can continue to have political influence after 2015.
“She wants to leave a legacy, but to do that she must leave the country in a somewhat healthy state,” said Francisco Resnicoff, a political analyst at Cefeidas Group in Buenos Aires. “But there is little time and huge problems with difficult solutions for this to happen.”
15. ARGENTINA VS. HOLDOUT BONDHOLDERS: THE EPIC SAGA (WSJ Blog)
17 June 2014
The U.S. Supreme Court’s rejection this week of Argentina’s appeal in its fight with a group of bondholders caps a years-long court battle.
The saga started when Argentina declared a moratorium on its debt payments in December 2001 amid the worst economic and social crisis in its modern history. That triggered what at the time was the largest sovereign default ever, involving some $100 billion.
The Argentine government managed to restructure about 93% of that debt through heavily discounted bond exchanges in 2005 and 2010. But a small group of investors refused to tender their defaulted bonds for new securities, and they have hounded Argentina in courts across the globe for close to a decade seeking full repayment.
In February 2012, a group of the holdouts, led by units of New York hedge funds Elliot Management and Aurelius Capital, won a landmark decision in a U.S. District Court. The case has wended its way through the appeals process for years. On Monday, the Supreme Court refused to hear Argentina’s last appeal. The court rulings give Argentina a choice: Pay the holdout creditors, or default on its current bonds.
Key developments in the case:
Feb. 23, 2012 — New York District Court Judge Thomas Griesa orders an injunction barring Argentina from making payments to holders of the restructured, or exchanged, bonds if it doesn’t also make “equal treatment” payments to a group of litigant holdout creditors led by Elliott Management and Aurelius Capital.
March 5, 2012 — Judge Griesa issues a stay on the injunction pending an appeal. This buys time for Argentina, allowing it to keep paying exchange bondholders without paying the holdouts.
Oct. 26, 2012 — The Second Circuit Court of Appeals in New York largely upholds the District Court decision on equal treatment and endorses the injunction on payments.
Nov. 28, 2012 — The appeals court reissues the stay, allowing Argentina to continue payments to exchange bondholders until a final ruling on appeal is reached.
March 1, 2013 — The appeals court orders the Argentine government to submit a proposal for paying the holdouts by March 29. In Buenos Aires, President Cristina Kirchner for the first time says her government is willing to make payments but only at a level consistent with prior debt exchanges.
March 29, 2013 — One hour before a midnight deadline, Argentina unveils a proposal for paying holdout creditors. The offering is similar to previous debt exchanges and valued by analysts at far below the holdouts’ total claim.
April 20, 2013 — Holdout creditors reject Argentina’s proposal to pay them about 20 cents on every U.S. dollar of bonds they own, leaving a U.S. appeals court to decide whether Argentina’s proposal complies with the lower-court ruling that holdout creditors must be treated the same as investors who hold its restructured bonds..
Aug. 23, 2013 — The Second Circuit Court of Appeals says Argentina’s offer to holdout creditors wasn’t enough and reiterates that if Buenos Aires pays exchange bondholders, it must also pay holdout bondholders 100% of what they are owed. However, the appeals court keeps a stay on the ruling in place while the U.S. Supreme Court decides whether to review the case.
Oct. 7, 2013 — The U.S. Supreme court declines to hear Argentina’s appeal. However, Buenos Aires will have another opportunity to petition the Supreme Court because its appeal to the Second Circuit Court to reconsider its decision is still pending.
Nov. 18, 2013 — The Second Circuit Court rejects Argentina’s request that it reconsider its earlier decision. The request had faced long odds because appeals courts don’t routinely reconsider their decisions.
Feb. 19, 2014 — Argentina again appeals to the Supreme Court, asking it to reverse the lower-court rulings. Lawyers for the Argentine government argue that it deserves a chance to explain why lower courts have misinterpreted a clause in defaulted bonds and trampled on the country’s sovereign immunity.
June 16, 2014 — The U.S. Supreme Court rejects Argentina’s appeal.
16. IMF ISSUES WARNING ON ARGENTINA DEBT DEFEAT  (WSJ Blog) (Dow Jones Institutional News)
By Ian Talley
17 June 2014
The major legal defeat Argentina suffered Monday in its decade-long fight against holdout bondholders could ricochet around the world’s sovereign debt markets, the International Monetary Fund warned Monday.
“We are concerned about possible broader systemic implications,” the IMF said in a statement. “The Fund is considering very carefully this decision.”
Last year, the IMF warned that if Argentina lost its case against creditors, the case could set a precedent that gives holdouts outsized power over nations struggling to pay back their debts.
That, the IMF warned, could undermine sovereign debt restructurings around the globe. Cutting the amount of debt owed to creditors is a last-chance emergency measure sometimes needed to prevent the collapse of entire economies.
Many experts think Argentina will now negotiate a settlement with the holdouts. “We feel fear of a default, which would have negative political and economic consequences and put the government’s policy agenda at risk, will push the government to negotiate, though the process could be messy and the 30 June payment could be at risk,” said Daniel Kerner, Eurasia Group Latin America division chief. Argentine President Cristina Kirchner indicated as much Monday night.
But the impacts are far broader.
“We now have a glimpse of the sovereign debt world after Argentina,” said sovereign debt expert and Georgetown University law professor Anna Gelpern. “This world is fraught with uncertainty, perhaps more so than it has been since the early 1990s.”
Ms. Gelpern said the IMF, the Group of Seven leading industrialized economies and others will have to rethink their reliance on sovereign immunity for getting restructurings done and courts around the globe will be forced to resolve conflicts between the Argentina legal case and their own law on sovereign debt. Financial markets are being forced to write new contracts that avoid complicated fights that leave creditors and borrowers in legal limbo for years.
For its part, the IMF reassessing how it handles the debt of countries in crisis. If a country can’t pay its debts, the IMF has traditionally only considered forcing a debt restructuring as a condition for an emergency fund loan. Now, it is considering offering an alternative: extending bond maturities.
“While bail-in measures would be voluntary (ranging from rescheduling of loans to bond exchanges that result in long maturities), creditors would understand that the success of such measures would be a condition for continued Fund support for the adjustment measures,” the fund said in its 2013 paper on restructuring.
Later this week, the IMF plans to post its latest policy musings on the issue.
17. JUSTICES DELIVER SETBACKS TO ARGENTINA (New York Law Journal)
By Marcia Coyle
18 June 2014
Volume 251; Issue 116
FEDERAL COURTS can order foreign sovereigns, such as Argentina, to produce information about their worldwide assets so that creditors can collect on court-ordered judgments, the U.S. Supreme Court ruled on Monday.
The 7-1 decision in Argentinav. NML Capital, 12-842, was one of two blows dealt by the high court to the South American nation in its long-running litigation battle with holders of billions of dollars in Argentine defaulted bonds.
The second blow came that same morning, when the justices declined to hear Argentina’s separate appeal of a decision by the U.S. Court of Appeals for the Second Circuit that would require the country to pay more than $1.3 billion to bondholders who rejected Argentina’s offer of new securities to swap out for the defaulted ones. About 92 percent of bondholders had accepted the swapped-out securities after the country defaulted on its debt in 2001 (NYLJ, Feb. 21, 2014; Aug. 26, 2013).
The high court’s actions, some experts said, would damage global financial stability—and particularly harm countries in financial distress.
“For 15 years, Republicans and Democrats have agreed that the world’s poorest countries need to have their debt burdens reduced,” said Eric LeCompte, executive director of Jubilee USA Network, a religious antipoverty organization. “For heavily indebted countries supporting poor people, this is a devastating blow. These hedge funds are equipped with an instrument that forces struggling economies into submission.”
NML Capital Ltd., the creditor in both high court cases, is owed about $2.5 billion that it has been unable to collect. Since 2003, it has sought discovery of Argentina’s property, and in 2010 subpoenaed Bank of America and an Argentine bank with a branch in New York City for information that could identify assets that might be subject to attachment.
Argentina fought discovery, arguing that the Foreign Sovereign Immunities Act (FSIA) barred discovery of its extraterritorial assets. The Second Circuit disagreed.
In the high court case, Justice Antonin Scalia, writing for the majority, said nothing in the FSIA immunizes a foreign-nation debtor from discovery of information about those assets after a court has issued a judgment. The act, however, does limit discovery to matters relevant to the execution of the judgment, he said.
Argentina and the United States had argued that permitting the broad discovery sought by NML Capital, represented by Theodore Olson of Gibson, Dunn & Crutcher, would undermine international comity, provoke reciprocal adverse treatment of the United States in foreign courts, and generally harm U.S. foreign relations.
“These apprehensions are better directed to that branch of government with authority to amend the act,” Scalia wrote. Justice Sonia Sotomayor did not participate in the case.
Justice Ruth Bader Ginsburg dissented, writing, “A court in the United States has no warrant to indulge the assumption that outside our country, the sky may be the limit for attaching a foreign sovereign’s property in order to execute a U.S. judgment against the foreign sovereign.”
The court’s discovery decision is significant, said foreign sovereign immunity expert Richard Klinger, a partner in Sidley Austin, because many third parties, particularly banks and other financial institutions, will face “burdensome and sensitive mandates” to provide information about their foreignstate customers. Those parties also now have significantly limited arguments for resisting discovery of foreign assets, he added, and “there are now further constraints” on the United States’ ability to assist foreign states in discovery litigation.
The justices issued no comment in declining to hear the related appeal by Argentina. In that case, NML Capital and others won a judgment requiring Argentina to pay cash to bondholders who did not accept the bond swaps before making reduced payments to those who did accept them.
Hours after the Supreme Court decision, Argentina’s president vowed that she would not go along with the U.S. judgment, which was issued by Southern District judge Thomas Griesa.
In a national address Monday night, Cristina Fernandez repeatedly vowed not to submit to “extortion,” and said she had been working on ways to keep Argentina’s commitments to other creditors despite the threat of losing use of the U.S. financial system.
Her hard line could be a last effort to gain leverage ahead of a negotiated solution that both sides say they want. But with only days before a huge debt payment ordered by the court is due, many economists, analysts and politicians said the country’s already fragile economy could be deeply harmed if she didn’t immediately resolve the dispute.
18. DEBT: U.S. SUPREME COURT “VALIDATES” VULTURE FUND ACTIVITIES (Inter Press Service)
By Carey L. Biron
17 June 2014
WASHINGTON, Jun. 17, 2014 (IPS/GIN) – The U.S. Supreme Court’s decision to reject an appeal by the Argentine government will embolden aggressive “holdout” creditors, anti-poverty groups say, and make it far more difficult to arrive at debt-relief agreements for poor countries.
The move, announced Monday, is a definitive setback for Argentina, which has been battling two U.S. hedge funds for years to allow a major debt-restructuring agreement to go forward. Yet the court’s decision is also being seen as a significant loss for poor countries looking for debt relief.
“I’m still reeling from this news,” Eric LeCompte, executive director of Jubilee USA Network, an umbrella of religious anti-poverty groups, told IPS.
“Not only is the behaviour of the hedge funds validated, but it has actually been encouraged. Now they have new legal instruments to force countries like Cote D’Ivoire and Zambia into submission pretty quickly.”
As per tradition, the court did not explain why it was declining Argentina’s appeal and, instead, letting stand a lower-court decision that requires Argentina to pay some 1.5 billion dollars to creditors. Following that verdict, in August, the Argentine government stated it would never comply with the order, though it has since softened its stance.
A second decision, also handed down by the Supreme Court on Monday, was overwhelmingly in favour of the hedge funds, allowing bondholders to force global banks to assist in tracing Argentine assets.
At issue is a strategy adopted by a small number of hedge funds, based particularly here in the United States, to purchase reduced-rate debt from poor countries with little hope of repayment. These firms then file lawsuits against those governments for failure to repay, looking to scoop up government revenues and international aid monies when they eventually start to flow.
Perniciously, these firms maintain the lawsuits even as other investors agree to reduce some debts, accepting lower-than-expected returns that nonetheless allow the indebted government to begin to recover economically.
Even a single such “holdout creditor” or “vulture fund” can gum up the entire debt-restructuring process, as legally the deal can’t go forward without approval from all creditors.
The landmark case has been the one involving Argentina, which in 2001 defaulted on billions of dollars’ worth of bonds after years of a roiling economy. Twice over the following decade the Argentine government offered to swap its externally held bonds for new ones worth about a quarter of their value.
While some 93 percent of Argentina’s creditors eventually agreed to such a deal, the arrangement has been rejected by two New York-based hedge funds, NML Capital and Aurelius. Those two subsequently sued the Argentine government, and NML was the lead plaintiff in the Supreme Court case.
The Argentine government had yet to comment on Monday’s rulings by deadline. In a statement to the media, NML said, “Now it is time for Argentina to honour its commitments to its creditors, which would benefit both Argentina’s economy and its international standing.”
*An enticing option*
Close observers of the process worry that the Supreme Court’s decision will not only embolden the rest of Argentina’s creditors, but could now lead other investors to see such “holdout” strategies as both acceptable and enticing.
“This behaviour was already among the most profitable in the world, and this ruling now deems it both legitimate and even more profitable, given that investors will have to spend less on litigation,” Jubilee USA’s LeCompte says.
“It’s hard to say how many investors will now want to jump in, but we can only assume that investors will inevitably be interested in actions that are both legally legitimised and extremely profitable.”
The United Nations has noted that the United States is the “preferred jurisdiction” for holdout creditors, though Monday’s decision will initially help fewer than 100 U.S.-based hedge funds. Still, some have suggested that Aurelius and NML fought so hard around the Argentina case less for the money immediately at stake than for the model that a favourable ruling would solidify for the future.
The potential negative impacts of Monday’s decision could thus be many and varied. Communities living in extreme poverty, for instance, could now have their state and international assistance assets become openly targeted and collected by predatory investors.
Multilateral lenders such as the International Monetary Fund (IMF) or the Paris Club, which has facilitated debt relief for 90 countries worth some 573 billion dollars, could also see their debt-restructuring attempts become far more difficult. Legitimate investors will likely increasingly decide against taking part in such restructuring, after all, given that their investments could now be in jeopardy.
As the current legal battle has played out in recent years, the IMF, the World Bank, the administration of President Barack Obama and a broad collection of investors have all formally sided with Argentina.
At the beginning of this month, an IMF spokesperson stated that the fund “remains deeply concerned about the broad systemic implications that the lower court decision could have for the debt-restructuring process in general.”
*Medium-term solutions*
There are multiple international efforts afoot that could either undercut predatory investors or, more broadly, create a formal international arbitration system to address sovereign debt.
Just last week, members of the IMF executive board discussed a new staff paper aimed at preventing global economic crises. According to an analysis from Jubilee USA and New Rules for Global Finance, a Washington watchdog group, proposals are being sought to “limit or eliminate extreme predatory and holdout behaviour that violate global debt relief policies, debt restructuring and sound operation of the financial system.”
Several U.N. bodies are also currently looking at various ways to outlaw holdout-type behaviour. Groups such as Jubilee are pushing a series of principles on responsible lending and borrowing.
Similar domestic legislation is expected to be introduced in the U.S. Congress later this year, though past such proposals have failed. Still, some suggest that discussion around the Supreme Court case could now motivate increased interest in the issue of holdout creditors.
At both the domestic or international level, however, any such move would offer a solution only in the medium term. Argentina now likely faces a Jun. 30 deadline to arrive at new repayment terms with all of its bondholders, including NML and Aurelius, though the country says paying what could amount to some 15 billion dollars would risk another default.
19. S&P CUTS ARGENTINA TO CCC- VS CCC+ ON SUPREME COURT (Market News International)
17 June 2014
Overview
-The U.S. Supreme Court yesterday declined to hear an appeal by the government of the Republic of Argentina of a lower court decision that ruled in favor of plaintiffs against Argentina.
-The Supreme Court decision raises the risk of payment interruptions on the foreign currency debt the sovereign owes to bondholders under New York law.
-As a result, we are lowering our long-term foreign currency rating on Argentina to ‘CCC-‘ from ‘CCC+’.
-The outlook on the long-term ratings is negative based on the potential for a payment interruption or a distressed debt exchange.
Rating Action
On June 17, 2014, Standard & Poor’s Ratings Services lowered its unsolicited long-term foreign currency rating on the Republic of Argentina (Argentina) to ‘CCC-‘ from ‘CCC+’. We affirmed the unsolicited short-term foreign currency rating at ‘C’. At the same time, we affirmed our ‘CCC+/C’
unsolicited long-term and short-term local currency ratings on Argentina. The outlook on both long-term ratings is negative. We also changed our transfer and convertibility (T&C) assessment to ‘CCC-‘ from ‘CCC+’.
Rationale
The downgrade reflects the heightened risk of default on foreign currency debt following a recent decision by the U.S. Supreme Court not to hear the Argentine government’s appeal against a previous decision by the U.S. Second Circuit Court of Appeals in favor of plaintiffs against the sovereign. The plaintiffs are bondholders who did not participate in the 2005 and 2010 debt exchanges and who have sought to block payments to bondholders who did
participate until they obtain full payment on their claims.
On Aug. 23, 2013, the U.S. Second Circuit Court of Appeals upheld the ruling of a district court in New York in favor of the plaintiffs against Argentina. However, the Second Circuit Court of Appeals decided to keep a previously granted stay order, pending an appeal filed by Argentina with the U.S. Supreme Court. Following the Supreme Court decision, it is not clear when
the lower court will lift its stay order, nor how it will specify a payment formula for the debt in default.
The Supreme Court decision raises the risk of payment interruptions on debt under New York law that is currently being serviced. Argentina has to make coupon payments for $225 million on performing bonds on June 30 (discount bonds denominated in U.S. dollars). Argentina is also scheduled to pay interest of $67 million on its New York jurisdiction Par bonds in September, followed by interest payments on its New York jurisdiction discount bonds in December. We
would not consider continued nonpayment of holdout creditors as a default (as we have previously recorded this default, see “Republic of Argentina,” published Jan. 11, 2002, on RatingsDirect), but we would consider interruptions to debt that is currently being serviced as a new default.
In particular, we think that the Argentine government has limited capacity to pay the plaintiff creditors while servicing its current debt. The government could attempt to maintain payments on its currently performing debt through a mooted debt exchange–it could possibly tender for the 2005 and 2010 restructured bonds in an exchange that could replicate tenor, amount, and coupon but change the governing law and jurisdiction of payment to Argentina. We could view such an exchange as a distressed exchange, based on our criteria. Although neither is certain, a default or a distressed debt exchange pertaining to currently serviced debt appears to be inevitable within six months, in our view, absent unanticipated significantly favorable changes in Argentina’s circumstances.
The affirmation of the local currency ratings reflects our view that the potential disruptions on payments resulting from adverse court rulings in the U.S. on foreign currency debt issued under New York law are not likely to affect the government’s ability to service debt issued in local currency under local law.
We revised our T&C assessment for Argentina to ‘CCC-‘ from ‘CCC+’. The government already uses a variety of exchange controls, and there is a disparity between the official and parallel market exchange rates. Our ‘CCC-‘ T&C assessment reflects the risk that the government could further tighten its exchange control regime to the extent that it impairs the ability of the private
sector to service its foreign currency debt.
Outlook
The negative outlook reflects the likelihood of a further downgrade based on possible payment interruptions or the announcement of what we could consider a distressed debt exchange. Either a payment interruption or a distressed debt exchange would lead us to lower our rating on Argentina to ‘SD’, indicating selective default.
We could revise the outlook on the long-term ratings to stable if threats to debt servicing were to unexpectedly diminish, combined with steps that boost external liquidity in order to meet substantial external debt amortization next year.
20. BITPAGOS RAISES $600,000 SEED ROUND TO BOOST BITCOIN USE IN SOUTH AMERICA  (WSJ Blog)
By Georgia Wells
17 June 2014
If entrepreneur Sebastian Serrano has his way, Argentines will be bitcoin-spending pioneers. He hopes hotels and hostels in the South-American country will bill their customers with his electronic-payment company BitPagos Inc. to bypass the country’s troubled currency and accept payments in bitcoins or dollars.
On Tuesday, the startup announced it had raised a seed round of $600,000 led by Pantera Capital, Tim Draper, Barry Silbert, Boost Bitcoin Fund, Amasia and others.
With the new funding, BitPagos plans to hire more employees in its Argentina office to focus on sales and creating marketing content to attract more clients.
BitPagos charges a 5% fee to process credit card transactions, and it handles bitcoin for free. In May, the company processed $150,000 in bitcoin payments.
The company is now split between Palo Alto, Calif., and Buenos Aires. Last year the company graduated from the Boost VC accelerator program in San Mateo, Calif. that has focused on virtual-currency startups. Mr. Serrano and his two co-founders are focusing on the hotel and travel industry for now, but ultimately they hope to process payments for any industry.
One challenge, however, is that Argentina isn’t known for its tech savviness. ATMs there haven’t fully caught on, for example, because many Argentines don’t trust them.
Still, Mr. Serrano has a few things going for him. The biggest: Argentina’s troubled currency. Inflation and laws that restrict the flow of money out of the country have eroded Argentines’ trust in the peso as a store of wealth has fueled a surge in bitcoin downloads there.
“People get very creative with their money here,” Mr. Serrano says. “There is no other way to survive.”
With bitcoin, people can transfer money directly without going through a third party, and can do so semi anonymously. Bitcoin transactions are stored on a public ledger, but it’s extremely difficult to determine the identities of the parties involved in the transactions, a perk to Argentines who want to avoid the scrutiny of the national tax agency, which has aggressively monitored the public’s purchases of foreign currencies.
Many hotels in Argentina prefer customers pay in U.S. dollars rather than the peso, said Diego Gutierrez Zaldivar, president of the Argentina Bitcoin Foundation, a nonprofit that promotes the use of digital currencies. That’s because the dollar isn’t subject to the same inflation and prone to devaluation like the peso, and capital controls make it difficult to buy them.
“Of course if they can get dollars from a tourist they would prefer that, ” he added.
Meanwhile, it’s also difficult for tourists to exchange unused pesos back into dollars–they also need permission from the government tax agency–so tourists are left trying to guess exactly how much cash they’ll need when they change their money the first time from dollars into pesos.
21. PRESS RELEASE: ARGENTINA BEST PLACED TO DEVELOP ITS SHALE RESOURCES OF ANY COUNTRY OUTSIDE OF NORTH AMERICA, SAYS ACCENTURE (Dow Jones Institutional News)
18 June 2014
New Report Examines the Development Potential of Nine Shale Basins
LONDON–(BUSINESS WIRE)–June 18, 2014– Argentina’s Neuquén basin promises the greatest potential for development of its unconventional resources, including shale gas and oil, of any country outside of North America, according to a new report published by Accenture (NYSE:ACN).
Accenture’s report, International development of unconventional resources: If, where and how fast? reviews basins in Argentina, Australia, China, Mexico, Poland, Russia, Saudi Arabia, South Africa and the United Kingdom. The report examines these basins against eight critical factors required for the development of unconventional resources and analyses their investment prospects.
“Before investing in shale oil and gas basins, developers need to consider eight key areas. These not only include the size of the potential resources and an enabling fiscal regime, but also the basin’s geology, in particular the availability of data, quality of the rock and requirements to adapt technology to the local rock”, said Melissa Stark global managing director of Accenture’s new energy business. “It’s also important to consider land access and operability, including population density, water availability and existing roads and rail infrastructure, as well as views of local Non-Governmental Organizations (NGOs). Additionally, developers should consider the presence of an existing unconventional services sector to support development; existing oil and gas distribution networks to commercialize the product; competition from conventional or other resources that could divert focus away from shale; and, finally, a skilled oil and gas workforce to enable future development of unconventional resources.”
“Although it would seem like the more factors that are met in each location, the sooner it is likely to become a viable unconventional resources investment, any single factor can delay development. We believe that even in the most favorable basins, development is at least five to 10 years away, and one thing that we tried to determine in this analysis is which factor will define the pace of development in each market,” Melissa Stark added.
So far, the largest number of exploration and test wells (200) have been drilled in Argentina and China, where the technically recoverable shale gas resources are estimated at 802 trillion cubic feet (tcf) and 1,115 tcf, respectively, compared to the United States, which has 665 tcf.
Although Argentina is a challenging environment for foreign investment, its government has begun to offer attractive incentives demonstrating a commitment to developing its unconventional resources. The established Neuquén basin has significant conventional oil and gas production and existing infrastructure, including roads, pipelines and rail, as well as an experienced oil and gas workforce, making it the next most attractive prospect for development. The fiscal regime is the most important factor driving its pace of development.
China’s biggest challenge is land access and operability, given its terrain, population density and water scarcity. But the pace of development in China will be driven primarily by its geology, the success of Sinopec’s and China National Petroleum Corporation’s exploration and the ability of those companies to adapt existing technologies to the local geological conditions.
In Australia and Mexico, the level of competition for investment and human resources from conventionals, or other resources like coal-bed methane in Australia and shallow water and offshore investment in Mexico, will have the greatest effect on the pace of developing unconventional resources.
In the UK, NGO opposition to unconventionals is the key factor affecting the pace of development.
The pace of development of Poland’s Baltic basin will depend upon the draft bill currently in parliament that addresses many of the operators’ concerns regarding the previous regulatory proposals. The draft bill abandons plans to create a new national regulator, proposes a more attractive tax regime and seeks to streamline licensing procedures. The question is whether the early enthusiasm in Poland will return.
Energy demand in Saudi Arabia is growing rapidly but lack of knowledge of the shale formation and lack of infrastructure in some frontier locations are so far among the biggest challenges for developing unconventional resources in the region.
“All eight factors need to fall into place to enable successful development in each location and regulators need to support the progression of all factors, not just the local fiscal regimes. Although Argentina is the most promising market today, this may change depending on how other markets respond. For example, Australia, the United Kingdom and Saudi Arabia, and even China, could all progress quite quickly, if they address the factor that is pacing the development in these markets, ” concluded Melissa Stark.
22. ARGENTINA DEBT TROUBLES TO SLOW FINANCING FOR VACA MUERTA: ANALYSTS (Platts Commodity News)
By Charles Newbery
17 June 2014
Buenos Aires (Platts)–17Jun2014/429 pm EDT/2029 GMT  Argentina likely will face a harder and lengthier time in attracting foreign investment for developing Vaca Muerta and other shale plays, after a US Supreme Court decision raised concerns of a looming debt default, analysts said Tuesday.
The Supreme Court said Monday it would not hear Argentina’s appeal against lower court rulings ordering the country to pay $1.5 billion to a handful of creditors.
These creditors, among them a hedge fund run by billionaire US investor Paul Singer, have been suing Argentina for full repayment on bonds from a $100 billion default in 2001. The latest decision raises the possibility that Argentina will have to pay these creditors and others up to $15 billion.
Argentinian President Cristina Fernandez de Kirchner said in a televised address to the nation late Monday that it is “impossible” to pay such an amount. She said that the amount equates to about half of the country’s $28 billion in foreign currency reserves.
But if it does not pay up, Argentina will default and the creditors can seek to seize sovereign assets from around the world.
This wobbly financial situation in Argentina could discourage companies from investing in developing Vaca Muerta and other shale plays, which are key for turning around a 10-year decline in oil and natural gas production and thereby slowing a surge in energy imports.
“YPF’s plan was to return to the international financial markets to finance part of its expansion,” said Federico MacDougall, an economist at the University of Belgrano in Buenos Aires. “Now there is no possibility of doing so in the medium term.”
This could put at risk YPF’s plans to increase oil and gas production by 5% and 18%, respectively, this year in comparison with 2013 by limiting the amount of funds available for drilling.
A YPF representative declined to comment on the impact of the ruling or provide a company response.
Argentina had been taking steps to resolve its remaining debts from the $100 billion default, making it possible to sell bonds again for the first time in 13 years.
Earlier this year, Argentina reached an agreement to pay $5 billion to Repsol for its expropriated stake in YPF, and then inked a deal to settle its $9.7 billion in defaulted debts with the Paris Club of creditor nations.
This progress led Economy Minister Axel Kicillof to say that companies in the country would have an easier time of raising funds for development projects, including to develop Vaca Muerta.
Now the problem with the holdout creditors may slow investment, analysts said.
Argentina cannot pay holders of its restructured bonds — 92% of the defaulted bonds — unless it also pays the holdout creditors at the same time, according to a US lower court ruling upheld in 2013 by an appeals court. The ruling, based on an equal treatment clause in the bond contracts, means that a default on all of the debts becomes more likely.
Fernandez de Kirchner said the country would continue to pay bondholders who accepted a repayment of 30 cents on the dollar in 2005 and 2010 restructures of the defaulted bonds. And she left open the possibility of negotiating a solution with the holdout creditors.
Kicillof is due to specify the actions the country will take in a press conference later Tuesday.
INVESTMENT SLOWDOWN
“As long as there is no final solution on this issue, it is very unlikely that a foreign partner will throw a few billion dollars into Vaca Muerta,” said Jorge Piedrahita, CEO of Torino Capital, a New York-based investment bank and broker. “I think everybody will hold off.”
Argentina needs massive amounts of money — some estimates suggest $100 billion — to develop potentially some of the largest shale oil and gas plays in the world.
The US Energy Information Administration estimates the resources at 27 billion barrels of shale oil and 802 Tcf of shale gas, far more than Argentina’s proved conventional reserves of 2.5 billion barrels of oil and 12 Tcf of gas.
This huge potential has led companies to start drilling for the resources. Later in 2014, YPF and Chevron plan to invest more than $1.6 billion in a 50/50 partnership targeting Vaca Muerta, part of a total of $16 billion in spending to increase output to more than 50,000 b/d of oil and 3 million cu m/d of associated gas. They reached 24,000 boe/d in May.
ExxonMobil, Petrobras, Shell and other companies are in the exploration phase on projects.
“There will be delays in investment projects in Argentina,” said Eduardo Blasco, a financial consultant at Maxinver in Buenos Aires. “When a foreign company wants to raise money for a business in Argentina and they see that they have to borrow at 13%, 14%, 15% or more in dollars, then they’re not going to go ahead with the project.”
Jorge Todesca, an economist at Finsoport, an economic consultancy in Buenos Aires, said that without investment to develop Vaca Muerta and other oil and gas deposits, energy imports will continue to rise unless a recession cools demand.
Argentina has been ramping up imports of diesel, fuel oil, gas and crude to offset a 20% and 36% drop in oil and gas production, respectively, over the past decade. This year it plans to import about 30 million cu m/d of gas like, matching imports in 2013.
POSSIBLE SOLUTION
Despite the setback, Piedrahita said that a solution with the holdout creditors may come quicker than expected.
“The solution doesn’t have to be too complicated or take too long,” he said. “It could happen within weeks or in the worst case it could take a few months.”
Piedrahita added that with the Supreme Court not hearing the case, a solution may come quicker than if it had dragged out even longer on the legal side of things.
“The medium term may be more positive than the doom and gloom of today,” he said.
23. ARGENTINE JUNE BIODIESEL EXPORT TAX SET AT 10.32%, LOCAL SELLING PRICE LOWERED (Platts Commodity News)
By Sean Bartlett
17 June 2014
London (Platts)–17Jun2014/1120 am EDT/1520 GMT  The tax for Argentine biodiesel exports in June has been set at a nominal value of 10.32%, while the effective rate including rebate stands at 9.36%, data released Tuesday on the Argentine Secretary of Energy’s website showed.
Though the nominal levels for April and May were not published on the website, a local industry source said they were set at 10.34% and 7.3%, respectively. Effective rates for the months are 9.37% and 6.8%, respectively.
The export tax had stood at upwards of 21% but was cut in May as the government attempted to support an ailing industry hit badly by the imposition of antidumping duties on exports into the EU.
Export volumes from the country have risen sharply since the tax was changed, with product heading to the US, Australia, Asia and elsewhere in South America, fixture lineups showed.
“Biodiesel exports are recovering, and last week a record of around 150,000 mt was traded,” the industry source said.
Material was also seen booked into Europe, but was likely to be blended into middle distillates bound for locations outside of the EU.
Rising energy prices in recent weeks have added impetus to the biodiesel export market in Argentina, as the biofuel becomes more attractive for discretionary blending into middle distillates. Discretionary blending takes place when the price of biodiesel provides an economic incentive for its use in diesel and gasoil pools, as opposed to requirements from biofuel mandates.
Meanwhile, the June domestic sales price for biodiesel was lowered to 5,871.68 Argentine Pesos/mt ($704.60/mt) for large, integrated producers, from 5,911.74 Pesos/mt in May and 6,098.01 Pesos/mt in April.
Argentina allocates separate domestic sales prices for producers based on their size. While large, integrated producers such as Cargill, Dreyfus, Molinos and Noble Argentina receive the lower rate, less integrated and smaller ones will receive between 6,927.91-7,446.09 Pesos/mt in June.
The majority of exports from Argentina are made by the largest and most integrated producers, which face an alternative of the lowest domestic price.
24. SCOURING THE WORLD FOR SHALE-BASED ENERGY (The New York Times)
By Mark Scott
18 June 2014
LONDON — The shale revolution is going global.
From the Australian outback to the Argentine Andes, many of the world’s largest energy companies are on the hunt for new sources of what they call unconventional oil and natural gas.
The multibillion-dollar investments, which often involve hydraulic fracturing, or fracking, could change the face of the global energy markets.
China and Russia have some of the largest shale oil and gas reserves in the world, according to the United States Energy Information Administration.
The development of these resources over the next 20 years, particularly in emerging markets, may reshape how oil and gas are consumed in some of the world’s fastest-growing economies.
”Shale has an opportunity to become very important to these countries,” said Melissa Stark, global managing director of the new-energy practice at the consulting firm Accenture. ”They are brand new markets. They are starting with a clean sheet.”
In total, global recoverable shale gas resources may reach 7.3 trillion cubic feet, or the equivalent of four times Russia’s proven gas reserves, according to the Energy Information Administration in Washington. Shale oil deposits could total 345 billion barrels worldwide, or more than Saudi Arabia’s current conventional oil resources.
The size of the potential reserves has spurred a burgeoning of industries in countries that traditionally have not had local energy sectors. Domestic energy booms also have allowed some countries, including the United States, to steadily reduce their reliance on high-priced energy imports.
The importance of shale is expected to grow as emerging markets bounce back from the global financial crisis and as accelerating economic growth pushes up demand for energy, including fossil fuels. Growing middle classes in countries like Brazil and India are starting to buy more luxury goods like cars and high-end smartphones. And despite the rise of renewables like wind- and solar-power, oil, gas and coal are still expected to represent the lion’s share of worldwide energy consumption for the foreseeable future. Global demand for gas, for example, is expected to jump more than 50 percent over the next 20 years, according to the International Energy Agency, an intergovernmental policy-coordinating and advisory body based in Paris.
Amid this rising consumption, shale is expected to provide more than a third of global supplies over the same period, up from around 15 percent last year.
”The golden age of gas remains in full swing,” Maria van der Hoeven, the Paris-based agency’s executive director, said in a statement recently. ”Gas is already a major fuel in power generation, but the next five years will also see it emerging as a significant transportation fuel.”
The rising importance of shale oil and gas comes as the industry in the United States, which began almost 20 years ago and is now the largest producer of unconventional energy, has gone mainstream.
Early trials of fracking, in which highly pressurized liquids are pumped deep underground to crack open oil- and gas-bearing rocks, proved economically unviable. But improvements in the technology and rising domestic costs of other fossil fuels have transformed the American oil and gas industry.
With billions of dollars of investment from major players like Exxon Mobil and smaller energy companies, shale gas now represents roughly 40 percent of America’s total natural gas production, compared to less than 5 percent of China’s overall gas production, according to the American energy data agency.
”International shale development could have an enormous economic impact like it has had in the U.S.,” said Chris Lewis of the consulting firm Ernst & Young in London.
Yet, despite the bullish prospects, many obstacles could still derail plans that have seen major players like Chevron, the American energy corporation, and Statoil, the Norwegian state-owned energy company, make multimillion-dollar investments from Argentina to Australia.
Environmental campaigners have raised concerns that the projects could have serious consequences on local ecosystems and populations that have yet to be touched by the invasive drilling techniques. That includes fears that water resources — a major component in fracking technology — could become contaminated after similar problems were highlighted at existing American shale sites.
Advocacy groups also have questioned whether developing countries have the environmental checks needed to hold companies accountable for ecological consequences.
A lack of local expertise and drilling equipment could also slow shale development, particularly in emerging markets.
Governments in countries like France and Bulgaria, meanwhile, have banned the development of shale sources in response to local fears that fracking could cause earthquakes.
”Each country has its own specific technical and commercial barriers,” said Emma Wild, head of the energy exploration and production advisory team at the consulting firm KPMG, who estimates that the commercialization of shale reserves could take up to 10 years in some countries. ”Developers need to overcome a number of obstacles to create a viable shale industry,” she said.
Still, despite the potential problems, many governments are offering lucrative subsidies to entice global energy companies to invest.
Argentina, for example, passed laws last year allowing foreign companies to export 20 percent of their shale production tax free after the fifth year of development. Shale gas deposits in Argentina’s Vaca Muerta rock formation at the foot of the Andes are estimated to be among the largest in the world.
That has led to investment by several global players. Chevron, for example, agreed to spend $1.6 billion this year alongside Argentina’s nationalized energy company YPF to develop local oil and gas reserves. That comes on top of a previous $1.24 billion investment from the U.S. energy giant. Royal Dutch Shell also is expected to invest around $500 million this year in the Argentine region as it hunts for unconventional energy reserves.
The spending comes despite regulatory uncertainty surrounding Argentina’s energy sector. In 2012, the country’s government seized a 51 percent sake in YPF from the Spanish energy giant Repsol. The company said the nationalization was illegal, and analysts say similar efforts by lawmakers to maintain control over the country’s nascent unconventional oil and gas sector remain a sizable hazard for foreign companies.
”The energy majors have all considered the risk, and see it as tolerable,” Ms. Wild of KPMG said. ”Argentina offers large areas of land where you can easily create a shale industry.”
In China, which has shale gas reserves almost two-thirds larger than those of the United States, national energy companies have teamed with international companies like Shell to bring their global expertise to local joint ventures. Sinopec and other Chinese state-owned energy companies have also bought minority stakes in American shale projects to gain much-needed expertise to bring back to their domestic operations.
As part of its energy strategy, the Chinese government wants to produce about 6.5 billion cubic meters of shale gas annually by next year. That target, however, is proving difficult to reach because the cost for each new wellhead is roughly three times the cost in the United States, making many sites uneconomic for now.
Yet, ”even though the current break-even price is high relative to the U.S., it should go down with increased experience,” said Milo Sjardin, Asia-Pacific regional head for Bloomberg New Energy Finance in Singapore. ”It is a domestic resource that will reduce China’s energy dependence.”

TUESDAY.

1. DON’T CRY FOR THEE, ARGENTINA (The Wall Street Journal)
17 June 2014
On one side are U.S. investors and the rule of law, and on the other are Argentinian deadbeats and their pals in the Obama Administration. Muchas gracias, the second group lost big at the Supreme Court on Monday in a 7-1 rout.
In 2001 Argentina defaulted on about $95 billion in sovereign bonds and restructured by offering to swap in new notes that paid about 33 cents on the dollar. Most creditors took the haircut but some preferred to settle up in the legal system, relying on an explicit covenant that disputes would be resolved in New York under New York law.
Buenos Aires lost in district court and on appeal. A subsidiary of Paul Singer’s Elliott Management called NML Capital, which is owed some $2.5 billion in principal and back interest, and other bondholders are chasing their Argentine money around the globe, wherever they can find it.
The creditors are seeking information via subpoena about world-wide Argentinian assets from U.S. banks and an Argentinian bank that does business in the U.S. Buenos Aires and President Obama’s legal gringos claimed that such discovery violates a 1976 law called the Foreign Sovereign Immunities Act, which protects some but not all forms of national property on American soil from private seizure and other legal obligations.
In Republic of Argentina v. NML Capital, the majority rightly held that simply because some assets are immune doesn’t mean that all assets are somehow exempted from third-party bank record discovery. Separately on Monday, the Court also denied without comment an appeal related to Argentina’s bid to discriminate among its creditors, another violation of the original bond issue.
Argentina’s U.S. Treasury amigos claimed that forcing Argentina to make good could trigger a financial crisis or another default. “These apprehensions are better directed to that branch of government with authority to amend the Act,” Justice Antonin Scalia dryly observed for the majority.
As a debt recidivist, Argentina may find it easier to finance its bonds if the money markets think the country will honor investor property rights, even if enforced by a judge. The Court has in effect ruled that a contract is a contract, upholding the norms that allow the international economy to operate.
2. DEBT ORDER ROCKS ARGENTINA — U.S. JUSTICES BACK HEDGE FUNDS IN BOND FIGHT; BUENOS AIRES STOCKS TAKE A DIVE (The Wall Street Journal)
By Ken Parks, Nicole Hong and Brent Kendall
17 June 2014
The U.S. Supreme Court handed Argentina a major setback in its long-running battle with a small group of determined creditors, heightening the risk the country will default for the second time in 13 years.
The justices on Monday rejected Argentina’s appeal of a lower-court ruling that said the country can’t make bond payments until it compensates hedge funds that refused to accept restructured debt in the years following Argentina’s 2001 default. Because of that earlier ruling, Argentina must decide by the end of the month whether to reach a deal with the holdouts or default on its next debt payment.
Argentina’s President Cristina Kirchner has refused to negotiate with the holdouts, calling them “vultures.” But in an address Monday night, she said Argentina wouldn’t default on its restructured debt and would make its interest payment at the end of June.
“Argentina has shown more than an evident willingness to negotiate [its debts]. But one has to distinguish between a negotiation and extortion,” Mrs. Kirchner said in a speech broadcast on national television.
The Supreme Court’s action is a pivotal — and potentially final — twist in a bitter battle pitting Argentina’s government against a few deep-pocketed hedge funds that have been steadfast in their insistence on full payment. Creditors attempted to seize the presidential plane in 2007. Elliott Management Corp.’s NML Capital Ltd. impounded a navy training vessel in 2012 and this year tried to block Argentina from launching a pair of satellites. The holdouts are owed over $1.5 billion, according to a person familiar with the matter.
Investors have been following the case for the legal precedent it might set for future sovereign-debt restructurings. As the dispute has wended its way through U.S. courts, money managers have also bought and sold Argentina’s bonds, profiting from the roller-coaster moves in prices that came with each turn.
The development sent shock waves through Argentine markets but generated few ripples elsewhere, reflecting the country’s relative isolation from the global financial system since its default. Prices of certain Argentine bonds dropped as much as 10%, while the stock market in Buenos Aires also fell 10%. Argentina has $54.8 billion in outstanding bonds that could be directly affected by the development.
The country’s economy and financial markets were already in a precarious position before the Supreme Court action. The country’s foreign-currency reserves, which are used partly to pay foreign bondholders, have dwindled to about $28.8 billion, nearly half what they were in 2011.
Analysts have questioned whether Argentina has enough dollars to keep the government running until its national election next year. Many investors have also been following the dispute to gauge Argentina’s ability to eventually tap global debt markets again to alleviate crippling U.S. dollar shortages at home.
“The legal process in the U.S. is over,” says Marco Schnabl, a partner at law firm Skadden, Arps, Slate, Meagher & Flom LLP, who filed a brief on behalf of parties who supported Argentina’s position. “What will happen is now a political question.”
Argentina defaulted on about $100 billion of its debt during its financial crisis in 2001. The country in 2005 and 2010 offered holders of the defaulted bonds new, heavily discounted debt in exchange. Between the two swaps, investors agreed to exchange about 93% of the defaulted bonds.
A New York federal trial judge and the Second U.S. Circuit Court of Appeals each ruled that Argentina’s refusal to pay bondholders who didn’t take the deal while paying on the newer debt violated a so-called equal-treatment promise the country made on the older bonds.
The Second Circuit rejected what the court called Argentina’s “blanket assertion” that a court action against the country would plunge it into a new economic crisis.
The Supreme Court declined to reconsider those rulings, in a brief written order. In a second, related case, the high court ruled that bank records about Argentina’s international assets can be made available to NML, which is seeking to collect on court judgments stemming from the default.
The action was a clear win for hedge funds that have been battling Argentina, including Elliott and Aurelius Capital Management LP. The action could reduce the likelihood of a settlement because they no longer fear losing in U.S. courts, said a person familiar with the matter.
NML said in a statement after the development, “Now it is time for Argentina to honor its commitments to creditors, which would benefit both Argentina’s economy and its international standing.”
Unless Argentina agrees to negotiate a settlement with the holdout hedge funds, Argentina is poised to miss at least $500 million in interest payments that are due June 30.
“This is the most negative scenario that could have happened” for Argentina, said Peter Lannigan, a managing director at Connecticut-based broker-dealer CRT Capital Group LLC. He added that the likelihood of default has risen “substantially.”
The Supreme Court actions come after Mrs. Kirchner’s government has stepped up its efforts to settle with creditors, which analysts say is a strategy aimed at regaining access to global debt markets. In May, the government agreed to pay $9.7 billion it owed to the Paris Club of creditor nations. That agreement came just weeks after Argentina paid $5 billion to oil firm Repsol SA as compensation for seizing a controlling stake in a subsidiary two years ago.
“If Argentina deals with this pragmatically, everyone will be a winner,” said Alberto Ramos, an economist with Goldman Sachs Group Inc. “If they go into another default. . .the uncertainty and cost that will require is the best recipe for Argentina’s economy to underperform and for the country to continue losing reserves.”
Despite Argentina’s financial troubles, opportunistic investors have always been drawn to Argentina’s juicy bond yields, which are high relative to other countries’ to compensate for the risk of investing there. The bet paid off last year, when Argentine bonds in the J.P. Morgan Emerging Market Bond Index returned 19% to investors, while the broader index fell 6.6%.
Some holders of Argentina’s restructured bonds still believe the country will be able to buy itself more time and avoid a default, including Diego Ferro, co-chief investment officer at Greylock Capital, which manages $850 million, primarily invested in distressed debt, including a variety of Argentina’s bonds.
“The likelihood of a technical default is overstated, and I don’t think it will happen,” Mr. Ferro said.
3. ARGENTINA’S DEBT APPEAL IS REJECTED BY JUSTICES (The New York Times)
By Adam Liptak
17 June 2014
Updated, 7:57 p.m. | The Supreme Court handed Argentina two major defeats on Monday in cases brought by bondholders who refused to accept reduced payments after the country’s 2001 default.
The developments are likely to add to the turmoil in Argentina’s already unsettled bond market.
In a one-line order issued at 9:30 a.m., the court refused to hear Argentina’s appeal of a lower court’s decision requiring it to pay holdouts who did not participate in debt restructurings in 2005 and 2010. About 45 minutes later, the court issued a 7-to-1 decision allowing the bondholders to issue subpoenas to banks in an effort to trace Argentina’s assets abroad.
The holdouts include NML Capital, an affiliate of Elliott Management, the hedge fund founded by Paul Singer. It brought 11 lawsuits in federal court in Manhattan to collect the billions it said it was owed, winning each one.
The case the court declined to hear, Argentina v. NML Capital, No. 13-990, concerned the larger question of whether those rulings were correct.
The United States Court of Appeals for the Second Circuit, in New York, ruled last August that Argentina had violated a contractual promise to treat all bondholders equally.
In the Supreme Court, Argentina asked the justices to refer the case to New York’s highest court for a definitive resolution of the proper interpretation of that contractual language, as it is a question of state law.
Separately, Argentina asked the justices to decide whether the lower court had misinterpreted a federal law on sovereign immunity.
The bondholders had urged the justices not to hear the case, in part because they said Argentina had vowed not to comply with a ruling against it in the case, ”This court does not grant review to render decisions that the parties are free to ignore,” their brief said.
Argentina replied that it would try to comply but that another default would be a possibility given the overall sums at stake for all holdout bondholders.
”Since Argentina lacks the financial resources to pay the holdouts in full (what would amount to $15 billion) while also servicing its restructured debt to 92 percent of bondholders,” the country’s lawyers wrote, ”Argentina will have to face, objectively, a serious and imminent risk of default.”
The case in which the justices actually ruled, Argentina v. NML Capital, No 12-842, was by comparison less significant. It concerned whether federal courts in the United States may issue subpoenas to banks to help creditors who have won judgments against Argentina find its assets around the world.
Justice Antonin Scalia, writing for the majority, said the subpoenas were proper and did not offend the protections Congress granted to Argentina and other countries in the Foreign Sovereign Immunities Act.
For starters, he said, Argentina had waived its immunity from the jurisdiction of courts in the United States in the contracts it signed when it sold the bonds.
The law also makes some kinds of property owned by a foreign country in the United States ineligible to be seized to pay a court judgment.
”That is the last of the act’s immunity-granting sections,” Justice Scalia wrote. ”There is no third provision forbidding or limiting discovery,” or court-ordered factual investigation, ”in aid of execution of a foreign-sovereign judgment debtor’s assets.”
Argentina argued that subpoenas meant to uncover assets held abroad were improper if those assets could not be seized under the relevant foreign law. Justice Scalia conceded the point. ”But the reason for these subpoenas,” he said, ”is that NML does not yet know what property Argentina has and where it is, let alone whether it is executable under the relevant jurisdiction’s law.”
In a dissent, Justice Ruth Bader Ginsburg said such subpoenas were improper unless the bondholders could first show that there was something to be seized.
”A court in the United States,” she wrote, ”has no warrant to indulge the assumption that, outside our country, the sky may be the limit for attaching a foreign sovereign’s property in order to execute a U.S. judgment against the foreign sovereign.”
Justice Scalia responded that there was no reason to require creditors to prove up front that they were entitled to seize property turned up through a subpoena.
The Obama administration had urged the justices to rule for Argentina in the subpoena case. ”The United States would be gravely concerned about an order of a trial court in a foreign country, entered at the behest of a private person, seeking to establish a clearinghouse in that country of all the United States’ assets,” Edwin S. Kneedler, a deputy solicitor general, said at the argument of the case in April.
In its brief, the administration said a ruling for the bondholders would harm international relations and could provoke ”reciprocal adverse treatment of the United States in foreign courts.
Justice Scalia said those concerns should be addressed to Congress, which enacted the Foreign Sovereign Immunities Act in 1976 in an effort to address what he called the bedlam of ”the old executive-driven, factor-intensive, loosely common-law-based immunity regime.”
The administration’s apprehensions, Justice Scalia wrote, ”are better directed to that branch of government with authority to amend the act — which, as it happens, is the same branch that forced our retirement from the immunity-by-factor-balancing business nearly 40 years ago.”
Justice Sotomayor recused herself in both cases. As is the court’s custom, she offered no explanation for the move.
This is a more complete version of the story than the one that appeared in print.
4. ARGENTINE LEADER REJECTS DEBT RULINGS (The Washington Post)
By Tom Hamburger and Roberto A. Ferdman
17 June 2014
Argentina’s president told a national television audience late Monday that the country would not abide by U.S. court rulings ordering payment of $1.3 billion to disgruntled creditors whose long-running legal battle against the nation received a boost from the U.S. Supreme Court earlier in the day.
In a defiant address, President Cristina Fernà¡ndez de Kirchner called the court orders “extortion.” But she said her country will continue making payments to holders of its restructured debt.
“We want to fulfill and honor our debt, and we will do that,” she said, according to the Reuters news service. “I ordered the Economy Ministry to set up all the tools needed to make the payment to those who trusted in Argentina.”
On Monday, the U.S. Supreme Court declined to consider Argentina’s appeal of a U.S. court of appeals order that the country pay bondholders who had refused to accept Argentina’s debt restructuring following a 2001 default. Argentina’s stock market plummeted after the court action was announced on fears of another national default, which Argentine officials had said might occur if they had to pay the debts in full.
The Supreme Court actions Monday provided a legal victory for hedge fund billionaire Paul Singer and other investors who had pursued litigation against Argentina, insisting that it could afford to pay its obligations and was failing to comply with legal obligations.
The high court left in place an appeals court ruling ordering Argentina to pay the original creditors before paying those who accepted restructured terms after the 2001 default. Argentine officials have said the country cannot afford to pay both sets of bondholders and had warned that paying the holdouts in full would mean a “serious and imminent risk of default.” Some independent analysts have been skeptical of Argentina’s claim that it can’t pay.
In a related ruling, the Supreme Court said that banks must comply with requests for information from the debt holders. Taken together, the decisions caused stocks to fall about 10 percent in Argentina, along with a 7 percent drop in bonds. Even after Monday evening’s presidential address, it was not clear how precisely Argentina would respond to the situation.
Fernández said in her televised speech that the Supreme Court damaged the interests of Argentina and the 92 percent of creditors who had agreed with past debt-restructuring proposals. She said she was willing to negotiate, but added, according to an Associated Press report, “What I cannot do as president is submit the country to such extortion.”
The Supreme Court action set off a spirited round in an ongoing debate about the effect of hedge funds and other investors who push poorer countries to repay their debts.
A spokesman for the leading plaintiffs, Singer’s NML Capital, said in a statement that “America’s highest Court has spoken. Now it is time for Argentina to honor its commitments to its creditors, which would benefit both Argentina’s economy and its international standing.”
Some of Argentina’s allies in the years-long legal action offered emotional and angry reactions.
“For heavily indebted countries trying to support extremely poor people, this is a devastating blow,” said Eric LeCompte, executive director of the religious anti-poverty organization Jubilee USA. He said the court’s decision threatened a bipartisan understanding that the world’s poorest countries need to have their debt burdens relieved.
The U.S. Court of Appeals for the 2nd Circuit ruled last year that Argentina breached a contractual obligation to treat all bondholders equally. The court rejected Argentina’s request for further review of that decision.
Hedge fund bondholders and their allies argue that they provide a service by identifying how much money is siphoned away from citizens of poor countries through corruption. The effort to learn about the location and status of sovereign assets was the subject of one of the court’s actions Monday.
In a 7-to-1 ruling, the court found that two banks must turn over information to investors about assets that Argentina holds worldwide.
Singer’s hedge fund filed the case, saying it needed information from the banks in order to collect $1.5 billion it won in cases against Argentina. NML sought data from Bank of America and state-owned Banco de la Nación Argentina, which has a branch in New York, about accounts held by Argentine government entities and by individual officials.
Argentina argued that it was protected from providing the information by the Foreign Sovereign Immunities Act, which limits lawsuits in U.S. courts against foreign countries. Argentina’s lawyers also argued that if a creditor could not ultimately execute a judgment against certain property, then it had no right to obtain information about it.
But the court, in an opinion by Justice Antonin Scalia, disagreed. “The reason for these subpoenas is that NML does not yet know what property Argentina has and where it is, let alone whether it is executable under the relevant jurisdiction’s law.”
Scalia said the justices did not have to decide what would happen if the assets were beyond the jurisdiction of a U.S. court. He said that would be the work of a district judge after discovery was completed.
Justice Ruth Bader Ginsburg was the lone dissenter. “By what authorization does a court in the United States become a ‘clearinghouse for information’ about any and all property held by Argentina abroad?” she asked.
Robert Barnes contributed to this report.
5. ARGENTINA’S TERRIBLE, HORRIBLE, NO GOOD, VERY BAD DAY IN THE SUPREME COURT ; ARGENTINA LOST ONE CASE ON THE MERITS AS THE SUPREME COURT REFUSED TO HEAR ANOTHER CASE RELATED TO THE COUNTRY’S DISPUTES WITH ITS CREDITORS. (Washington Post.com)
By Jonathan H. Adler
17 June 2014
Monday was not a good day for Argentina at the U.S. Supreme Court. In Republic of Argentina v. NML Capital, the court held 7 to 1 that the Foreign Sovereign Immunity Act (FSIA) does not immunize a foreign-sovereign judgment debtor (in this case, Argentina) from post-judgment discovery of information concerning its extraterritorial assets.  At issue was whether Argentina’s creditors could obtain discovery about Argentina’s assets outside the United States, even if some or all of these assets might be immune from judgment in a U.S. court.
Were that not enough, the Supreme Court also turned away Argentina’s effort to put another case before the court. In a similarly captioned case, Argentina sought Supreme Court review of a lower court injunction that inhibits Argentina’s ability to restructure its debts.  As I noted here, there was some question whether Argentina was willing to abide by an adverse court judgment, which may have influenced the Supreme Court’s willingness to grant its petition.
UPDATE: However bad today was for Argentina, I doubt they’ll make a movie about it.
FURTHER UPDATE: Argentina says it cannot afford to pay its creditors and that it will not submit to “extortion.”
6. ARGENTINA HIT WITH BLOW ON DEBT; PRESIDENT SAYS NATION CAN’T PAY AFTER U.S. SUPREME COURT REFUSES TO HEAR PLEA (Los Angeles Times)
17 June 2014
Argentina suffered a stunning defeat at the U.S. Supreme Court as justices refused to consider its plea to extend a decade of litigation over defaulted debt, prompting President Cristina Fernandez later to say her country can’t comply with orders to pay $1.5 billion to the winners.
Delivering a nationally broadcast address Monday night, Fernandez expressed willingness to negotiate with the winners, but said there was simply no way that Argentina can pay in cash, in full, starting just two weeks from now, which is what the U.S. courts have ordered.
“What I cannot do as president is submit the country to such extortion,” Fernandez said.
Under the U.S. court orders, Argentina must hand over $907 million to the plaintiffs before June 30 or lose the ability to use the U.S. financial system to pay an equal amount to holders of other Argentine bonds. Fernandez said the total owed, including interest, would be $1.5 billion.
Paying that could mean defaulting on the vast majority of the country’s performing debts, which are held by bondholders who agreed previously to provide debt relief that enabled Argentina to rebound from its economic crisis of 2001, she said.
Fernandez said experts are working on ways to avoid such a default and keep Argentina’s promises to pay those bondholders. But, she said, her government will not make the court-ordered payments to NML Capital and other investors she called “vulture funds.”
“It’s our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators,” Fernandez said.
The markets had expected Fernandez to take a hard stance, which could be tough on the economy. Argentine stocks plunged as economists, analysts and opposition politicians practically begged her to comply.
The justices not only rejected Argentina’s appeal without comment, they also ruled 7-1 that bondholders could force Argentina to reveal where it owns property around the world. That could make it easier to collect on other debts that have gone unpaid since Argentina’s economy collapsed.
Justice Antonin Scalia wrote that U.S. federal law offers no shield to Argentina’s assets. Justice Ruth Bader Ginsburg worried that this could expose even its embassies and military ships to seizure if the government doesn’t pay.
“This is the end of the line for Argentina in the judicial appeal process. It has nowhere else to turn,” said Richard Samp, a Washington Legal Foundation lawyer who lobbies for plaintiffs, including NML Capital, which is owned by New York billionaire Paul Singer.
Bowing to the U.S. courts would force Fernandez to betray a pillar of the government since her late husband and predecessor, Nestor Kirchner, won the presidency in 2003: That Argentina must maintain its sovereignty and economic independence at any cost.
Paying off the lawsuit winners in the way the courts have ordered also would encourage a long line of other creditors to seek similar treatment. Fernandez said those creditors together hold $15 billion in defaulted debt, or more than half the central bank’s remaining foreign reserves, and that paying it all immediately in cash “is not only absurd but impossible.”
In addition, Fernandez said, there’s near certainty that if Argentina paid, holders of the other 92% of Argentina’s defaulted debt “will find a judge who will tell them that they, too, have the same rights,” leading to “the more than certain possibility that the economy will crash.” She said those investors hold $24 billion worth of debt.
Argentina’s immediate economic outlook seems grim. Its Merval stock index dropped 11% after the court decision, its largest one-day loss in more than six months. Share prices for the state-run YPF energy company fell nearly 13%, while the Edenor electricity utility plummeted 20%. The cost of insuring Argentine bonds against default soared, and the value of Argentina’s currency plunged to 12 pesos to the dollar on the black market, implying a 33% loss to anyone needing to buy foreign currency legally.
7. JUSTICES SAY NO TO ARGENTINA; FERNNDEZ SAYS NATION CAN’T PAY DISPUTED DEBT (USA Today)
By Richard Wolf
17 June 2014
The Supreme Court delivered a double-barreled defeat to Argentina on Monday in that nation’s efforts to escape its remaining creditors.
The high court refused to consider Argentina’s appeal of federal court rulings in New York that it remains liable for debts to holdout creditors who refused to accept its restructured debt offerings in the past decade.
The justices ruled in a separate case that the holdout creditors have the right to seek Argentina’s hidden assets around the world. Only Justice Ruth Bader Ginsburg dissented from that ruling.
Hours later, President Cristina Fernández said Argentina won’t submit to what she called extortion or allow its economy to be ruined after losing the court ruling. Fernández said there’s no way Argentina can comply with the rulings to pay off the disputed bonds in full but her government remains willing to negotiate lesser payments.
The rulings are a victory for NML Capital, a so-called “vulture fund” subsidiary of Paul Singer’s Elliott Management Corp.
The hedge fund, which represents corporate investors, is owed more than $1.5 billion after refusing Argentina’s roughly 25 cents- on-the-dollar offerings in 2005 and 2010.
Besides those owed money from Argentina’s $82 billion default in 2001 — at the time, the largest government default in history — the rulings may prove important to state pension funds and others suing foreign countries for damages, such as families of terrorism victims.
The decisions continue Argentina’s losing streak in federal courts. Although the Foreign Sovereign Immunities Act of 1976 was intended to protect nations from U.S. courts, district and appeals judges have ruled that the holdout creditors can go after Argentine assets and should be treated the same as creditors who accepted the country’s restructured debt.
The dual decisions represented a setback for the Obama administration.
The State Department had warned that if Argentina’s property can be sought beyond U.S. borders, foreign courts could do the same to the United States, risking “reciprocal adverse treatment of the United States in foreign courts.”
8. SUPREME COURT SIDES WITH HOLDOUT CREDITORS IN ARGENTINA DEBT CASE — 3RD UPDATE (Dow Jones Institutional News)
By Ken Parks, Nicole Hong and Brent Kendall
16 June 2014
The U.S. Supreme Court handed Argentina a major setback in its long-running battle with a small group of determined creditors, heightening the risk the country will default for the second time in 13 years.
The justices on Monday rejected Argentina’s appeal of a lower-court ruling that said the country can’t make bond payments until it compensates hedge funds that refused to accept restructured debt in the years following Argentina’s 2001 default. Because of that earlier ruling, Argentina must decide by the end of the month whether to reach a deal with the holdouts or default on its next debt SHY payment.
Argentina’s President Cristina Kirchner has refused to negotiate with the holdouts, calling them “vultures.” But in an address Monday night, she said Argentina wouldn’t default on its restructured debt and would make its interest payment at the end of June.
“Argentina has shown more than an evident willingness to negotiate [its debts]. But one has to distinguish between a negotiation and extortion,” Mrs. Kirchner said in a speech broadcast on national television.
The Supreme Court’s action is a pivotal–and potentially final–twist in a bitter battle pitting Argentina’s government against a few deep-pocketed hedge funds that have been steadfast in their insistence on full payment. Creditors attempted to seize the presidential plane in 2007. Elliott Management Corp.’s NML Capital Ltd. impounded a navy training vessel in 2012 and this year tried to block Argentina from launching a pair of satellites. The holdouts are owed over $1.5 billion, according to a person familiar with the matter.
Investors have been following the case for the legal precedent it might set for future sovereign-debt restructurings. As the dispute has wended its way through U.S. courts, money managers have also bought and sold Argentina’s bonds, profiting from the roller-coaster moves in prices that came with each turn.
The development sent shock waves through Argentine markets but generated few ripples elsewhere, reflecting the country’s relative isolation from the global financial system since its default. Prices of certain Argentine bonds dropped as much as 10%, while the stock market in Buenos Aires also fell 10%. Argentina has $54.8 billion in outstanding bonds that could be directly affected by the development.
The country’s economy and financial markets were already in a precarious position before the Supreme Court action. The country’s foreign-currency reserves, which are used partly to pay foreign bondholders, have dwindled to about $28.8 billion, nearly half what they were in 2011.
Analysts have questioned whether Argentina has enough dollars in its coffers to keep the government running until its national election next year. Many investors have also been following the dispute to gauge Argentina’s ability to eventually tap global debt markets again to alleviate crippling U.S. dollar shortages at home.
“The legal process in the U.S. is over,” says Marco Schnabl, a partner at law firm Skadden, Arps, Slate, Meagher & Flom LLP, who filed a brief on behalf of parties who supported Argentina’s position. “What will happen is now a political question.”
Argentina defaulted on about $100 billion of its debt during its financial crisis in 2001. The country in 2005 and 2010 offered holders of the defaulted bonds new, heavily discounted debt in exchange. Between the two swaps, investors agreed to exchange about 93% of the defaulted bonds.
A New York federal trial judge and the Second U.S. Circuit Court of Appeals each ruled that Argentina’s refusal to pay bondholders who didn’t take the deal while paying on the newer debt violated a so-called equal-treatment promise the country made on the older bonds.
The Second Circuit rejected what the court called Argentina’s “blanket assertion” that a court action against the country would plunge it into a new economic crisis.
The Supreme Court declined to reconsider those rulings, in a brief written order. In a second, related case, the high court ruled that bank records about Argentina’s international assets can be made available to NML, which is seeking to collect on court judgments stemming from the default.
The action was a clear win for hedge funds that have been battling Argentina, including Elliott and Aurelius Capital Management LP. The action could reduce the likelihood of a settlement because they no longer fear losing in U.S. courts, said a person familiar with the matter.
NML said in a statement after the development, “Now it is time for Argentina to honor its commitments to creditors, which would benefit both Argentina’s economy and its international standing.”
Unless Argentina agrees to negotiate a settlement with the holdout hedge funds, Argentina is poised to miss at least $500 million in interest payments that are due June 30.
“This is the most negative scenario that could have happened” for Argentina, said Peter Lannigan, a managing director at Connecticut-based broker-dealer CRT Capital Group LLC. He added that the likelihood of default has risen “substantially.”
The Supreme Court actions come after Mrs. Kirchner’s government has stepped up its efforts to settle with creditors, which analysts say is a strategy aimed at regaining access to global debt markets. In May, the government agreed to pay $9.7 billion it owed to the Paris Club of creditor nations. That agreement came just weeks after Argentina paid $5 billion to oil firm Repsol SA as compensation for seizing a controlling stake in a subsidiary two years ago.
“If Argentina deals with this pragmatically, everyone will be a winner,” said Alberto Ramos, an economist with Goldman Sachs Group Inc. “If they go into another default…the uncertainty and cost that will require is the best recipe for Argentina’s economy to underperform and for the country to continue losing reserves.”
Despite Argentina’s financial troubles, opportunistic investors have always been drawn to Argentina’s juicy bond yields, which are high relative to other countries’ to compensate for the risk of investing there. The bet paid off last year, when Argentine bonds in the J.P. Morgan Emerging Market Bond Index returned 19% to investors, while the broader index fell 6.6%.
Some holders of Argentina’s restructured bonds still believe the country will be able to buy itself more time and avoid a default, including Diego Ferro, co-chief investment officer at Greylock Capital, which manages $850 million, primarily invested in distressed debt, including a variety of Argentina’s bonds.
“The likelihood of a technical default is overstated, and I don’t think it will happen,” Mr. Ferro said. He says he sees Monday’s selloff as an opportunity to buy more Argentine bonds, because the Supreme Court action is ultimately accelerating a resolution to a dispute that has created uncertainty for all bondholders.
For now, analysts say the effects of the Supreme Court action will be contained to Argentina’s markets. However, the victory for the holdouts in Argentina’s case is liable to make emerging-market bond investors less willing to accept the terms of debt restructurings in the future if they see that holding out pays off.
Matt Wirz contributed to this article.
9. COLUMN-IF ARGENTINA RESTRUCTURES BONDS TO EVADE HEDGE FUNDS, SANCTIONS LOOM (Reuters News)
By Alison Frankel
16 June 2014
NEW YORK, June 16 (Reuters) – Argentina is just about out of legal options in its blood feud with NML Capital, Aurelius Capital and other holdout bondholders.
On Monday, the U.S. Supreme Court refused outright to hear Argentina’s appeal of a ruling from the 2nd U.S. Circuit Court of Appeals that prohibits the foreign country from making payments to bondholders who exchanged defaulted debt without also paying holdout hedge funds that have won about $1.5 billion in judgments against Argentina. Argentina had been hoping the justices would at least ask for briefing from the U.S. Solicitor General, which would have bought it some time.
But time is up for Argentina: The country’s next payment to exchange debt holders is due on June 30, and if it fails to pay the hedge funds at the same time or tries to restructure its bonds to evade U.S. courts, Argentina risks monetary sanctions and being held in contempt of court.
Such a ruling would further blacken Argentina’s reputation in global debt markets — but it wouldn’t have much actual effect on whether the hedge funds are able to collect what they’re owed. According to Michael Mukasey of Debevoise & Plimpton, a former U.S. attorney general and former chief U.S. district judge in Manhattan, Argentine assets in the United States would probably still be protected by the Foreign Sovereign Immunities Act even if Argentina were found in contempt and hit with sanctions. “What can (U.S. courts) do about it?” Mukasey said. “Not a whole lot.”
Mukasey was one of six former federal judges who submitted a friend-of-the-court brief urging the Supreme Court to reject Argentina’s appeal, arguing that Argentina didn’t deserve the justices’ consideration because its lawyers had already told judges at the 2nd Circuit that Argentina would not “voluntarily obey” U.S. court directives. In a subsequent brief at the Supreme Court, Argentina pledged to comply with U.S. court orders, but warned that if the justices didn’t agree to hear its appeal, it might be forced to default on its debt.
DEBT RESTRUCTURING
NML, meanwhile, said in a separate proceeding in the lower courts that Argentina had a secret plan in case it was rebuffed at the Supreme Court. According to the hedge fund, a leaked memo from Argentina’s lawyers at Cleary Gottlieb Steen & Hamilton showed that Argentina intended not simply to default on its exchanged debt but immediately to restructure the bonds to put them out of the reach of U.S. courts.
While Argentina’s petition was before the Supreme Court, NML told U.S. District Judge Thomas Griesa of Manhattan, who is presiding over Argentina’s litigation with the hedge fund holdouts, that Argentina was flauting Griesa’s October 2013 injunction barring it from changing bond mechanisms in order to evade payments to the hedge funds.
NML asked Griesa to issue a supplemental injunction to clarify that Argentina is permanently prohibited from making such changes. At a June 3 hearing, Cleary partner Carmine Boccuzzi said the firm was just outlining options for its client and that Argentina had no plan to restructure its debt. “We have never advised a client just to turn their nose up to the court’s orders and to evade them,” Boccuzzi told Griesa.
Griesa found earlier this month that the Cleary memo is privileged but hasn’t done anything else with NML’s motion. If, however, Argentina follows through with what Cleary called its “best option” and restructures its debt to avoid paying the hedge funds, NML and the other holdouts will undoubtedly ask Griesa to hold Argentina in contempt and hit it with sanctions.
The U.S. government has twice argued in federal circuits that foreign sovereigns cannot be held in contempt of U.S. courts. In 2006, the 5th Circuit agreed; but in a 2011 ruling called FG Hemisphere v. Democratic Republic of Congo, the D.C. Circuit said that the Foreign Sovereign Immunities Act does not bar a federal court from holding that another country is defying its orders. “There is not a smidgen of indication in the text of the FSIA that Congress intended to limit a federal court’s inherent contempt power,” the D.C. Circuit opinion said.
The Supreme Court signaled a similar view of the law on Monday — in another dispute between Argentina and NML. In a unanimous decision, the court authorized NML to conduct court-approved discovery on Argentine assets even though the Justice Department sided with Argentina in opposing the discovery.
FSIA PROTECTION
The opinion, written by Justice Antonin Scalia, said that FSIA protection is limited to the two immunities Congress specified in the law, and that if the Justice Department is worried about the policy implications of otherwise subjecting foreign nations to U.S. court orders, it should ask Congress to amend the law.
“Today’s decision,” said FSIA lawyer Richard Klingler of Sidley Austin (who was not involved in the NML case), “says that if you’re a foreign sovereign, you don’t get special rules unless Congress said so.”
Nevertheless, as the D.C. Circuit pointed out in the 2011 Congo case, FSIA protects even the assets of foreign sovereigns found in contempt. Argentina’s hedge fund opponents have been attempting for a decade to execute some $15 billion in judgments against the country. They haven’t been very successful, despite some of the most creative theories ever to surface in post-judgment enforcement litigation. Monetary sanctions against Argentina would add to the total due to the hedge funds — but wouldn’t help them collect it.
Will Cleary Gottlieb face any consequences if Argentina restructures its bonds and is found in contempt? Klingler said that if Argentina does attempt to evade U.S. court orders, Judge Griesa in Manhattan will probably press Cleary for more details on what the firm knew about its client’s plans. He and Mukasey both said, however, that as long as Cleary lawyers could show that they had a reasonable and good-faith basis for their representations to Judge Griesa, the firm should be fine.
I emailed Boccuzzi, Cleary partner Jonathan Blackman, and Argentina Supreme Court counsel Paul Clement of Bancroft, none of whom got back to me. A Cleary spokeswoman said in an email, “As stated on the record in the district court and to the Supreme Court, Argentina will not evade any rulings and will comply, although that means Argentina faces, objectively, a serious and imminent risk of default.”
10. Q&A-WHAT’S NEXT FOR ARGENTINA’S DEBT BATTLE AFTER LATEST COURT DEFEAT? (Reuters News)
By Daniel Bases and Sarah Marsh
16 June 2014
NEW YORK/BUENOS AIRES, June 16 (Reuters) – The U.S. Supreme Court on Monday declined to hear Argentina’s appeal seeking to overturn an order to pay holdout sovereign creditors $1.33 billion, setting off a scramble in Buenos Aires on what it can do now given its legal options are exhausted.
If Argentina cannot come to an agreement with the holdouts and pay them at the same time it pays the bondholders who participated in two prior sovereign restructurings, the South American nation will enter a technical default. Exchange bondholders hold roughly $24 billion worth of restructured debt.
The next payment due exchange bondholders is June 30, with a 30 day grace period.
President Cristina Fernandez is scheduled to address the nation on Tuesday at 00:00 GMT (20:00 EST/21:00 ARG).
She has called the holdout investors “vultures” for buying the debt at a steep discount and then demanding full payment in the aftermath of the country’s crippling economic crisis. The holdouts, led by NML Capital Ltd, an affiliate of hedge fund Elliott Management, and Aurelius Capital Management, counter that they’re just trying to hold Argentina to its obligations and that the country has plenty of reserves to pay them.
Below are some key questions that now arise because of the decision, which brings to a close just one of many cases brought against Argentina since its then historic debt default in late 2001, early 2002 that at the time amounted to $100 billion.
Q: What are Argentina’s next possible steps?
A: Argentina can ask the U.S. Supreme Court to reconsider its decision and play for time before the next coupon payments are due. Lawyers say Argentina’s chance for success with that motion is “slim to none.”
Argentina can pay the holdouts what they have won in court and remove a major impediment to the government’s ability to tap international capital markets and lower their borrowing costs;
Buenos Aires could refuse to pay the holdout investors and default on the restructured debt because it would be blocked from transmitting payments to exchange bondholders;
President Fernandez can start discussions for a negotiated settlement with the holdouts, who remain open to sitting down with the government.
An Argentine statute called Rights upon Future Offers precludes voluntarily agreeing better terms with holdouts. It expires Dec. 31, 2014, but lawyers following the case say the fact that Argentina is being ordered to pay means it may not apply and could offer the government a face-saving option to strike a deal.
Argentina could attempt to pay the exchange bondholders by restructuring their existing bonds to debt governed by Argentine law and paid out in Argentina to bypass U.S. law and its payments system. However, if they did so they would most likely be found in contempt of an injunction specifically prohibiting such a plan.
Q: What is the effect on global emerging market debt and future restructurings?
A: The U.S. Supreme Court’s decision about Argentina sent its bonds down sharply but hardly registered elsewhere.
Argentina argues a holdout win means future sovereign debt restructurings would be much more difficult and New York would suffer as bonds would be issued outside its jurisdiction.
The U.S. government argued in a friend-of-the-court brief that a ruling against Argentina could make it much harder for countries facing financial distress to get creditor support for crucial debt swaps. The U.S. did not comment on the merit of the case itself.
“I think market reaction is a general shrug, in terms of Argentina’s assertions that this would discredit the New York law bonds as a source of capital,” said AJ Mediratta at Greylock Capital in New York.
Mediratta said new bonds issued in the market take into account the lessons learned from the Argentina case, including clearer definitions of pari passu, or equal treatment clauses, as well as collective action clauses which limit the influence of holdouts.
Moody’s Investors Service said last year the sovereign restructuring mechanism as it stands now, whereby creditors form committees to negotiate with the governments for a reasonable workout, seems to work.
“The case of Argentina is unique in the historical context,” Elena Duggar, sovereign risk analyst at Moody’s told Reuters in January.
Q: What would a default do to the Argentine economy?
A: The Supreme Court’s refusal to hear Argentina’s case against bondholders makes a fresh default more likely but it would be a default over a matter of principle, unlike in 2001-02 when it was over a matter of necessity.
Analysts say the effect on Latin America’s No. 3 economy would likely be limited, unlike last time when its record default unleashed a financial and economic meltdown.
Argentina has already been cut off from global credit markets for more than a decade. Its foreign debt represents just 13.2 percent of gross domestic product now.
Still, a default would delay the country’s return to global credit markets – a move it has been working towards over the past few months, resolving long-running disputes with foreign investors and creditors, in view of rapidly dwindling foreign reserves.
Corporate and public credit would become even more expensive. Uncertainty about Argentina’s economic outlook might momentarily stall investment and consumption and trade could be impacted by a shortfall of credit.
If, however, Argentina finds a way to negotiate with holdouts, it could still achieve the goal of regaining access to capital markets in the near to medium-term, finally resolving a decade-long litigation.
Q: What options do holdout investors have now?
A: The holdouts will continue to wait for Argentina’s next move. As one holdout, who spoke on condition of anonymity said, “Argentina has lost in court before and we are still waiting.”
In the past, NML, one of the lead holdout creditors that is part of billionaire Paul Singer’s Elliott Management Corp., has said they remain open to negotiating with Argentina.
Creditors holding about 93 percent of the defaulted debt agreed to participate in debt swaps in 2005 and 2010 that gave them between 25 and 29 cents on the dollar. Holdouts might consider whether they ask for all cash or a combination of cash and bonds to settle their case. (Reporting by Daniel Bases in New York and Sarah Marsh in Buenos Aires, editing by John Pickering)
11. ARGENTINA PRESIDENT DEFIES US COURT ORDER ON REPAYMENT OF DEBTS (FoxNews.com)
June 17, 2014
Argentina’s president has said that she would refuse to comply with a U.S. judge’s order to pay $1.5 billion to winners of a decade-long legal battle over defaulted debt after the U.S. Supreme Court refused to hear her government’s final appeal.
Delivering a nationally broadcast address Monday night, Cristina Fernandez expressed willingness to negotiate with the winners, but said there is simply no way that Argentina can pay the amount in cash, in full, starting just two weeks from now, which is what the U.S. courts have ordered.
“What I cannot do as president is submit the country to such extortion,” Fernandez said.
Under the U.S. court orders, Argentina must hand over $907 million to the plaintiffs before June 30, or lose the ability to use the U.S. financial system to pay an equal amount to holders of other Argentine bonds.
That could mean defaulting on the vast majority of the country’s performing debts, which are held by bondholders who agreed previously to provide debt relief that enabled Argentina to rebound from its economic crisis of 2001.
Fernandez said she has experts working on ways to avoid such a default and keep Argentina’s promises to pay those bondholders. But, she added, her government will not make the court-ordered payments to NML Capital Ltd. and other investors she calls “vulture funds.”
“It’s our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators,” Fernandez said.
The president said her government has repeatedly shown its willingness and ability to negotiate debt accords, and called on her countrymen to “remain tranquil” despite the Supreme Court loss. “It was known that this would happen,” she said.
The markets had expected Fernandez to take a hard stance, which could be tough on the economy. Argentine stocks plunged as economists, analysts and opposition politicians practically begged her to comply.
The justices not only rejected Argentina’s appeal without comment — they also ruled 7-1 that bondholders could force Argentina to reveal where it owns property around the world. That could make it easier to collect on other debts that have gone unpaid since Argentina’s economy collapsed.
Justice Antonin Scalia wrote that U.S. federal law offers no shield to Argentina’s assets. Justice Ruth Bader Ginsburg worried that this could expose even its embassies and military ships to seizure if the government doesn’t pay.
“This is the end of the line for Argentina in the judicial appeal process. It has nowhere else to turn,” said Richard Samp, a lawyer for the Washington Legal Foundation who lobbies for plaintiffs that included NML Capital Ltd., the hedge fund owned by New York billionaire Paul Singer, told The Associated Press.
Argentina could win a delay of a few weeks by asking for a rehearing, but they are almost never granted.
Bowing to the U.S. courts would force Fernandez to betray a pillar of the government that she and her late husband and predecessor, Nestor Kirchner, have led since he won the presidency in 2003: That Argentina must maintain its sovereignty and economic independence at any cost.
Paying off the lawsuit winners in the way the courts have ordered also would encourage a long line of other creditors to seek similar treatment. Fernandez said Monday night those creditors together hold $15 billion in defaulted debt, or more than half the Central Bank’s remaining foreign reserves, and that paying it all immediately in cash “is not only absurd but impossible.”
In addition, Fernandez said, there’s the near certainty “that the other 92 percent of bondholders will find a judge who will tell them that they, too, have the same rights,” leading to “the more than certain possibility that the economy will crash.”
Refusing to comply could win applause from her core supporters, because paying the plaintiffs 100 percent plus interest in cash would mean sacrificing the subsidies and populist programs that enabled her to win re-election by a landslide.
But while she and Singer jockey for any remaining advantage ahead of the inevitable negotiations over Argentina’s debt payments, the immediate economic outlook could be grim.
Argentina’s Merval stock index dropped 11 percent after the court decision, its largest one-day loss in more than six months. Share prices for the state-run YPF energy company fell nearly 13 percent, while the Edenor electricity utility plummeted 20 percent. The cost of insuring Argentine bonds against default soared, and the value of Argentina’s currency plunged to 12 pesos to the dollar on the black market, implying a 33 percent loss to anyone needing to buy foreign currency legally.
Refusing to comply was “the best option” among a series of grim alternatives that Cleary, Gottlieb, U.S. law firm representing Argentina in Washington, presented to Fernandez ahead of the Supreme Court decision. Defaulting first could be Argentina’s last hope for leverage in negotiations with the holdouts, the firm said.
12. ARGENTINE LEADER SAYS SHE WON’T HONOR $1.5 BILLION DEBT RULING DESPITE US SUPREME COURT LOSS (US News & World Report)
By Michael Warren
June 17, 2014
BUENOS AIRES, Argentina (AP) — Argentina’s president is refusing to go along with a U.S. judge’s ruling requiring a $1.5 billion repayment of defaulted bonds, even though the U.S. Supreme Court rejected her government’s appeals and left the order in place.
In a national address Monday night, Cristina Fernandez repeatedly vowed not to submit to “extortion,” and said she had working on ways to keep Argentina’s commitments to other creditors despite the threat of losing use of the U.S. financial system.
Her hard line came hours after the justices in Washington refused to hear Argentina’s appeal, and it could be a last effort to gain leverage ahead of a negotiated solution that both sides say they want. But with only days before a huge debt payment ordered by the court is due, many economists, analysts and politicians said the country’s already fragile economy could be deeply harmed if she didn’t immediately resolve the dispute.
Refusing to comply with rulings that have been allowed to stand by the U.S. Supreme Court “would be very damaging to the Argentine economy in the near future,” said Miguel Kiguel, a former deputy finance minister and World Bank economist in the 1990s who runs the Econviews consulting firm in Buenos Aires.
Argentine markets were already reflecting fear. The Merval stock index dropped 11 percent after the court decision, its largest one-day loss in more than six months, and the value of Argentina’s currency plunged 33 percent on the black market.
Fernandez urged her countrymen to “remain tranquil” in the days ahead.
Bowing to the U.S. courts would force her to betray a core value that she and her late husband and predecessor, Nestor Kirchner, promoted since they took over the government in 2003: Argentina must maintain its sovereignty and economic independence at any cost.
But a chorus of analysts said that if she complied with the ruling, it would become much easier for Argentina to borrow again, rebuilding its reserves and preventing the recession from getting even deeper.
U.S. District Court Judge Thomas Griesa order requires that $1.5 billion be paid “all together, without quotas, right away, now, in cash, ahead of all the rest” of bondholders, Fernandez said.
“This represents a profit of 1,608 percent, in dollars!” she complained. “I believe that in all of organized crime there has never been a case of a profit of 1,608 percent in such a short time.”
But Fernandez also said repeatedly that her government is ready to negotiate with the “speculators” who scooped up Argentine junk bonds after the country’s 2001 default. Owners of more than 92 percent of the nearly worthless debt agreed to accept new bonds worth much less than their original face value, but investors led by New York billionaire Paul Singer held out and litigated instead, seeking to force Argentina to pay cash in full plus interest.
Singer’s NML Capital Ltd. has now won in the U.S. courts — and if Argentina doesn’t hand over $907 million to the plaintiffs in the next two weeks, the judge will order U.S. banks not to process Argentina’s June 30 payment totaling an equal amount to all the other bondholders.
Fernandez said her government “will not default on those who believed in Argentina.” But analysts have questioned whether holders of restructured debt would accept payments outside the U.S. financial system.
“Some people say, ‘Why don’t you pay them and end all this right now?'” the president said. “It’s because there’s another problem, even more serious. There’s another 7 percent who would be able to demand payment from Argentina, right away and now, of $15 billion. That’s more than half the reserves in the Central Bank. As you can see, it’s not only absurd but impossible that the country pays more than 50 percent of its reserves in a single payment to its creditors.”
“It’s our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators,” she said.
The plaintiffs said her government needs to settle now.
“The time has come for Argentina to enter into good-faith negotiations with holdout bondholders,” said Richard Samp, an attorney for the Washington Legal Foundation who has acted as a spokesman for NML’s position throughout the case. “Argentina has expressed a desire to be permitted to re-enter financial markets around the world. The only way that it can do so is by coming to terms with its existing creditors.”
Refusing to comply was “the best option” among a series of grim alternatives that Cleary, Gottlieb, the U.S. law firm representing Argentina in Washington, presented to Fernandez ahead of the Supreme Court decision. That guidance suggested Argentina should default on all its debts before negotiating in order to gain more leverage.
Associated Press writers Mark Sherman in Washington, Luis Andres Henao in Santiago, Chile, and Almudena Calatrava in Buenos Aires contributed to this report
13. ARGENTINA AND THE HOLD-OUTS: CRUNCH TIME APPROACHES (The Economist Blog)
By H.C.
Jun 16th 2014
ARGENTINA has tried hard in the past few months to show it is ready to make its peace with international capital markets. It has belatedly recognised several decisions by the International Centre for Settlement of Investment Disputes (ICSID), an arbitration body; it agreed a compensation deal with Repsol, after the Spanish firm’s stake in YPF, an oil firm, was expropriated in 2012; and just last month it reached a deal on its outstanding debts to the Paris Club, a group of official creditors. But on June 16th, the United States Supreme Court threw a large spanner in the works when it decided against Argentina in two separate cases related to the country’s “hold-out” bondholders.
The Supreme Court declined to hear Argentina’s defence against NML Capital, a “vulture” investor that bought up distressed bonds following Argentina’s 2001 default and has been chasing payment of full principal plus interest instead of accepting a debt exchange, as 93% of bondholders did in two restructurings in 2005 and 2010. Citing a clause in the original bond documentation called pari passu, NML argues that the holders of these restructured bonds should not be paid if they, the hold-outs, are not also remunerated. This view was supported by a district court in New York—the bonds were mostly issued under New York law–and then upheld by an appeals courts. Argentina itself then appealed to the Supreme Court to hear the case.
The Supreme Court’s rejection of the case today means that the original district-court order, which says that Argentina should pay NML the full $1.3 billion it claims, is likely to come into effect in the next few days. Argentina could technically ask the Supreme Court to rehear its case, but that is unlikely given that the court virtually never accepts such requests. To make matters worse, the court today also ruled in favour of NML in another case against Argentina, which will allow the investment fund to locate assets the country might have ferreted away across the globe.
Its legal options exhausted, only unpleasant choices remain. First, Argentina could pay NML the $1.3 billion it demands. But that would also open it up to similar claims by other hold-out bondholders, who were not involved in the litigation but would surely like the same treatment. Argentina has estimated the value of these claims to be $15 billion; NML guesses they’re more like $6 billion. Either way, such claims would stress Argentina’s foreign-exchange reserves, which stand at less than $29 billion.
Second, Argentina could negotiate with NML. The investment fund has expressed its willingness to haggle, but Argentina has so far refused. The country has claimed that the Right Upon Future Offers (RUFO) clause included in the restructured bonds preclude it from offering the hold-outs a better deal than the one it extended to the bondholders who accepted the 2005 and 2010 debt exchanges. NML rubbishes that argument. The RUFO clause only prohibits Argentina from “voluntarily” offering to exchange or purchase the hold-out bonds, it says. Since the New York courts have ordered Argentina to pay the hold-outs, even an extrajudicial settlement could be interpreted as involuntary. NML adds that if Argentina truly believed the RUFO clause impeded negotiation, they could request that the holders of restructured bonds waive that provision in order to ensure a resolution and avert default.
The problem with the negotiation option is political. President Cristina Fernández de Kirchner and her lackeys have railed against NML, avowing never to pay or negotiate with them. Ms Fernández’s political base seems to have shrunk to a core that will support her blindly, come what may. But past form suggests she will find it hard to eat her words, even if negotiation seems the best option.
Rumours are flying that Argentina may try to continue paying its exchange bondholders without paying the hold-outs by somehow transferring the restructured bonds out of US jurisdiction and reconstituting them under Argentine law. But this move is a complex one to pull off, and time is pressing: Argentina’s next payment on its exchange bonds is due on June 30th. If a stay on the district-court decision is lifted, as expected, Argentina will either have to pay NML or reach a settlement before that date to avoid a default.
Defaulting on all its bonds is Argentina’s final option. A leaked memo from its lawyers at Cleary Gottlieb Steen & Hamilton LLP, made public before today’s decision, spelled out the logic as follows: “Argentina wants to continue paying its restructured debt. The courts, however, have put it in a terrible position. In a position that, save that the Supreme Court revises the issue, would seem to be obliging Argentina to fall in default, since no other option resolves the dilemma created by the courts when they gave each one of the hold-outs the power to interrupt the payment of the rest.” Default would crush Argentina’s hopes of returning to international capital markets, however. It would be best if Argentina could reach a settlement with the hold-outs. But Argentina does not always make the best choices.
14. ARGENTINA: WON’T SUBMIT TO ‘EXTORTION’ ON DEBT (Boston Herald.com)
June 16, 2014
President Cristina Fernandez says Argentina can’t possibly comply with U.S. court orders to pay $1.5 billion in cash to winners of a decade-long debt dispute, the position her country was left in Monday when the U.S. Supreme Court refused to hear her government’s final appeal.
Delivering a nationally broadcast address Monday night, Fernandez expressed willingness to negotiate, but said there is simply no way that Argentina can pay in cash, in full, starting just two weeks from now, which is what the U.S. courts have ordered.
“What I cannot do as president is submit the country to such extortion,” Fernandez said.
Under the U.S. court orders, Argentina must hand over $907 million to the plaintiffs, or lose the ability to use the U.S. financial system to pay an equal amount due June 30 to holders of other Argentine bonds.
Fernandez said the total owed to the plaintiffs is $1.5 billion including interest, and paying it all immediately in cash the way the courts ordered could trigger another $15 billion in other cash payments to the remaining holders of defaulted debt. That “is not only absurd but impossible,” since it represents more than half the Central Bank’s remaining foreign reserves, she said.
She repeatedly vowed to keep making payments on the vast majority of the country’s performing debts, which are held by bondholders who agreed previously to provide debt relief that enabled Argentina to rebound from its economic crisis of 2001. Even if Argentina can’t use the U.S. financial system to do so, she said, teams of experts are working on ways to avoid such a default and keep Argentina’s promises.
Meanwhile, she suggested that she has a moral obligation not to make the court-ordered payments to NML Capital Ltd. and other investors she calls “vulture funds.”
“It’s our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators,” Fernandez said.
The president said her government has repeatedly shown its willingness and ability to negotiate debt accords, and called on her countrymen to “remain tranquil” despite the Supreme Court loss. “It was known that this would happen,” she said.
Earlier Monday, the markets reacted in fear that Fernandez would take just such a stance. Argentine stocks plunged as economists, analysts and opposition politicians practically begged her to comply.
The justices not only rejected Argentina’s appeal without comment — they also ruled 7-1 that bondholders could force Argentina to reveal where it owns property around the world. That could make it easier to collect on other debts that have gone unpaid since Argentina’s economy collapsed.
Justice Antonin Scalia wrote that U.S. federal law offers no shield to Argentina’s assets. Justice Ruth Bader Ginsburg worried that this could expose even its embassies and military ships to seizure if the government doesn’t pay.
“This is the end of the line for Argentina in the judicial appeal process. It has nowhere else to turn,” said Richard Samp, a lawyer for the Washington Legal Foundation who lobbies for plaintiffs that included NML Capital Ltd., the hedge fund owned by New York billionaire Paul Singer.
Argentina could win a delay of a few weeks by asking for a rehearing, but they are almost never granted.
Bowing to the U.S. courts would force Fernandez to betray a pillar of the government that she and her late husband and predecessor, Nestor Kirchner, have led since he won the presidency in 2003: That Argentina must maintain its sovereignty and economic independence at any cost.
In addition, Fernandez said, there’s near certainty that the 92 percent of creditors who accepted new bonds at steep discounts years ago — debt now totaling at $24 billion — “will find a judge who will tell them that they, too, have the same rights,” leading to “the more than certain possibility that the economy will crash.”
Refusing to comply could win applause from her core supporters, because paying the plaintiffs 100 percent plus interest in cash would mean sacrificing the subsidies and populist programs that enabled her to win re-election by a landslide.
But while she and NML Capital’s owner, New York billionaire Paul Singer, jockey for any remaining advantage ahead of the inevitable negotiations, Argentina’s immediate economic outlook seems grim, analysts say.
Argentina’s Merval stock index dropped 11 percent after the court decision, its largest one-day loss in more than six months. Share prices for the state-run YPF energy company fell nearly 13 percent, while the Edenor electricity utility plummeted 20 percent. The cost of insuring Argentine bonds against default soared, and the value of Argentina’s currency plunged to 12 pesos to the dollar on the black market, implying a 33 percent loss to anyone needing to buy foreign currency legally.
Refusing to comply was “the best option” among a series of grim alternatives that Cleary, Gottlieb, U.S. law firm representing Argentina in Washington, presented to Fernandez ahead of the Supreme Court decision.
Fernandez will pay a steep political price by paying off the winners, but doing so will lower Argentina’s country risk, restore foreign reserves and prevent the recession from worsening, said Miguel Kiguel, a former deputy finance minister and World Bank economist in the 1990s who now runs the Econviews consulting firm.
Defiance “would be very damaging to the Argentine economy in the near future,” he said.
Associated Press writers Mark Sherman in Washington, Luis Andres Henao in Santiago and Almudena Calatrava in Buenos Aires contributed to this report
15. SUPREME COURT HANDS BILLIONAIRE PAUL SINGER A VICTORY OVER ARGENTINA (Forbes.com)
By Daniel Fisher
6/16/2014
Billionaire Paul Singer defeated the nation of Argentina today when the U.S. Supreme Court upheld a lower court ruling allowing a subsidiary of his Elliott Associates hedge fund to dig into Argentina’s bank records in search of assets to seize in compensation for some $2.5 billion in defaulted bonds and interest.
Rejecting arguments by both Argentina and the U.S. government that a federal law prohibits courts from ordering discovery against a sovereign nation, the Supreme Court in Republic of Argentina vs. NML Capital said there’s nothing wrong with allowing creditors to seek such information even if some of it can’t be used. The Foreign Sovereign Immunities Act, which sets out the limits of seizing assets from foreign countries, says nothing about the court-ordered factfinding process known as discovery, the Supreme Court said.
The Supreme Court also refused to reverse a 2013 ruling by the Second Circuit Court of Appeals in New York  prohibiting Argentina and its agents from paying the holders of newly issued bonds unless they also pay the hedge funds their pro rata share of what is owed. Combined with the decision on discovery, it gives the vulture investors the power to negotiate a settlement with Argentina under the threat of forcing an even larger default or seek court orders to probe the movement of Argentina’s assets around the world. Elliott Associates attempted to seize an Argentinian naval training vessel when it made a stop in Ghana in 2012, as my colleague Agustino Fontevecchia reported, and even a presidential jet.
The decision leaves intact broad protections Congress ordered for foreign assets under FSIA, a 1976 law that  replaced a haphazard system mostly dictated by the State Department’s concerns about the international implications of seizing another country’s property. FSIA prohibits the seizure of foreign assets in the U.S. unless they are used strictly in commercial trade, and prohibits actions against foreign central banks. But “there is no third provision forbidding or limiting discovery in aid of execution of a foreign-sovereign judgment debtor’s assets,” Justice Antonin Scalia wrote in a decision joined by six other justices. (Sonia Sotomayor, who considered the case while on the Second Circuit, recused.)
Justice Ruth Bader Ginsburg issued a brief dissent, saying the ruling would allow a U.S. court to become a “clearninghouse for information” that was useless to creditors within the U.S. ”
A court in the United States has no warrant to indulge the assumption that, outside our country, the sky may be the limit for attaching a foreign sovereign’s property in order to execute a U. S. judgment against the foreign sovereign,” Ginsburg wrote.
The majority acknowledged it is possible Congress didn’t intend U.S. courts to serve as clearinghouses for information that FSIA expressly prohibits creditors from using to seize assets in this country. “The riddle is not ours to solve (if it can be solved at all),” Scalia wrote, however. Such questions, as well as concerns about the impact of fishing expeditions like Singer’s on foreign relations.
“These apprehensions are better directed to that branch of government with authority to amend the Act—which, as it happens, is the same branch that forced our retirement from the immunity-by­ factor-balancing business nearly 40 years ago,” Scalia wrote.
Singer’s NML was among a small group of holdouts that resisted Argentina’s attempt to restructure some $24 billion in debt the country defaulted upon in 2001, by issuing new bonds of lesser value. The holdouts brought 11 lawsuits in federal courts in New York and won all of them, prevailing as well before the Second Circuit Court of Appeals in 2012.
The case is unusual partly because Argentina waived its sovereign immunity in the bond indentures as a condition for selling them in 1994. It sold the bonds under contracts specifying any disputes would be resolved under New York law, and the indenture specifically states that the country’s obligation to repay could be transferred to opportunistic vulture funds that buy bonds at a discount. Argentina nevertheless argued that FSIA, by implication, prohibited U.S. courts from ordering discovery in search of its extraterritorial assets.
The law firm Mayer Brown, in a note to clients, had this to say about the implications of the ruling:
“The decision is important to entities that do business with foreign governments because it will give them more tools for executing on judgments that they may obtain against those governments and, as a result, reduce the leverage those governments may hold over them in disputes that may arise. At the same time, the decision may dramatically increase the burden and expense to financial institutions that do business with foreign governments”.
16. ARGENTINA REJECTED BY U.S. HIGH COURT ON DEFAULTED BONDS (Bloomberg.com)
By Katia Porzecanski, Camila Russo and Greg Stohr
Jun 16, 2014
Argentine Economy Minister Axel Kicillof, who negotiated $15 billion of payments to resolve debt disputes in the past four months, has two weeks to pull off his toughest deal yet.
The country’s bonds plunged today after the U.S. Supreme Court decided against hearing Argentina’s appeal of an order requiring it to pay holders of defaulted notes from 2001 in full when making payments on its restructured debt. The next payment comes due June 30, giving Kicillof limited time to reach a settlement with holdouts and avoid a new default.
The government says paying back holdout creditors in full would amount to $15 billion, money that would deplete foreign reserves already hovering near an eight-year low. Locked out of international credit markets for more than a decade, Argentina may have few options other than meeting a request for negotiations from Elliott Management Corp., the New York-based hedge fund run by Paul Singer that refused to accept two prior debt restructurings that gave investors about 30 cents on the dollar.
“Argentina was never going to negotiate on Elliott’s terms without a negative ruling in hand,” Eduardo Levy-Yeyati, the chief economic adviser at New York-based investment bank ACGM Inc., said in a telephone interview from Buenos Aires. “Now they can say to voters, ‘We did everything legally possible.’”
The dispute revolves around Argentina’s 2001 default on a record $95 billion in debt. The country offered to substitute lower-value bonds in 2005 and made a similar proposal in 2010. Owners tendered about 92 percent of the outstanding debt.
Paris Club
Kicillof, who holds a doctorate in economics from the University of Buenos Aires, brokered a $9.7 billion settlement last month to resolve a dispute with the Paris Club group of creditors dating from the 2001 default. That came months after reaching a $5 billion accord to compensate Repsol SA for Argentina’s seizure of oil producer YPF SA. (YPF) The announcements helped push bond yields to a two-year low before the Supreme Court ruling.
Argentina calls investors who have refused previous debt exchanges “vultures” because they bought many of the bonds post-default at a discount, angling to eventually collect a windfall. Argentina said it couldn’t afford to pay both sets of bondholders because claims similar to Elliott’s could mount to $15 billion from the $1.3 billion involved in the current ruling.
‘Imminent Risk’
“America’s highest court has spoken,” NML Capital, a unit of Elliott Management, said in a statement. “It is time for Argentina to honor its commitments to its creditors, which would benefit both Argentina’s economy and its international standing.”
Lawyers for the defaulted bond holders today filed papers in the Court of Appeals saying that the previous orders “are now in full force and effect” as a result of the Supreme Court’s refusal to hear the case.
Carmine Boccuzzi, a lawyer who represents Argentina, didn’t return a voicemail message seeking comment. The country had said in a May 27 filing that complying would create “a serious and imminent risk of default.”
Notes due 2033 and sold under New York law, which have the interest payment due June 30, fell 7.04 cents on the dollar to 74.66 cents at 5:55 p.m. New York time, according to data compiled by Bloomberg. The extra yield investors demand to own Argentine debt over U.S. Treasuries widened 129 basis points, or 1.29 percentage point, to 866 basis points, the most in emerging markets, according to JPMorgan Chase & Co.
NML had argued that an equal-treatment, or “pari passu,” clause in the bond agreement bars Argentina from treating the restructured securities more favorably than the defaulted bonds.
Next Step
A federal trial judge agreed with that argument, as did the New York-based 2nd U.S. Circuit Court of Appeals in two rulings.
Argentina has given mixed signals about its likely next step. In an appeals court hearing last year, the government’s attorneys said the Latin American country wouldn’t “voluntarily” obey the court orders.
In its most recent Supreme Court brief, the country promised to comply with the orders, while saying the likely result would be a new default. According to a memo leaked to an Argentine website last month, the country’s attorneys recommended a default and immediate restructuring in the event the Supreme Court rejected the appeal.
Last week, Kicillof raised the prospect of negotiating with the holdouts, a step the country has previously rejected.
Public Opinion
“Kicillof is a very bright individual, but he doesn’t have much experience on these matters and that is an issue here,” Diego Ferro, co-chief investment officer at Greylock Capital Management LLC, said in a telephone interview from New York. “The holdouts are wholly rational market participants and at this point in time they want to move on.”
In a September poll of 1,000 Argentines conducted by Buenos Aires-based research company Poliarquia Consultores for Graham Fisher & Co., 74 percent of those surveyed believe the government should negotiate with holdouts from the restructuring.
Between paying the debt in full and not paying it at all, 68 percent of those surveyed said the government should pay holdouts in full.
Over the past year, Argentina has also settled claims with five companies in the World Bank arbitration arm and improved economic data reporting at the request of the International Monetary fund.
“The administration has a much stronger willingness to pay debt,” Kathryn Rooney Vera, a macroeconomic strategist at Bulltick Capital Markets, said in a telephone interview from Miami. “The sense that we get is they’re definitely open to negotiation and the winds have changed.”

ARGENTINE UPDATE – Jun 11, 2014

13 junio, 2014

THURSDAY 

 
 
 
 
 
 
 
 
1. SUPREME COURT TO CONSIDER TAKING ON ARGENTINA BONDS CASE (The Wall Street Journal)
By Ken Parks
June 11, 2014
*Country Has Been Battling With Hedge Funds Trying to Collect on Defaulted Sovereign Bonds
Argentina’s legal battle with hedge funds that are suing to collect on defaulted bonds faces a key test this week before the U.S. Supreme Court, where justices may decide whether to get involved in the closely watched case.
At stake is whether Argentina stages its second multibillion-dollar default. In 2001, the government stopped payments on about $100 billion in debt, at the time the largest sovereign default ever. Investors are also following the case for the legal precedent it might set for future sovereign debt restructurings, and to gauge Argentina’s ability to eventually tap global debt markets amid deteriorating economic conditions at home.
The Supreme Court is scheduled on Thursday to review Argentina’s appeal of a lower-court ruling, which ordered the country to pay those hedge funds that had refused to accept two debt restructuring deals giving creditors just a portion of what they were owed.
The justices could say as soon as Monday whether they will review the case. If they refuse to consider Argentina’s appeal, the ruling will remain in place, forcing Argentina to pay hedge funds and its current creditors at the same time or not at all.
“Here you have a case where the most determined sovereign and the most determined creditors are facing off in an epic battle to the end,” says Anna Gelpern, a professor at Georgetown Law and a fellow at the Peterson Institute for International Economics.
These holdout creditors have scoured the globe for Argentine government assets in a largely unsuccessful attempt to collect on more than $1.5 billion in court awards. Hedge funds have tried to seize central bank funds, an Argentine Navy training ship, and more recently satellite-launch contracts.
Argentina has settled with a string of jilted creditors since October, using a strategy that analysts say is aimed at regaining access to global debt markets to ease crippling U.S. dollar shortages at home. In its latest deal, Argentina agreed last month to pay $9.7 billion to the Paris Club of creditor nations.
The hedge fund dispute is now the only significant barrier to Argentina selling bonds abroad for the first time since the 2001 default. President Cristina Kirchner reiterated on June 4 that she won’t negotiate with creditors she calls “vulture funds.” Her cabinet chief, Jorge Capitanich, has declined to comment on Argentina’s appeal.
The case has been allowed to escalate into a shouting match between U.S. courts and a foreign sovereign, says Marco Schnabl, a partner at law firm Skadden, Arps, Slate, Meagher & Flom LLP.
It is a case about unpaid debts “in which Argentina has been branded in the U.S. [as] a fugitive convict, and Argentina at times believes the U.S. behaves like an international vandal,” said Mr. Schnabl.
Argentina’s odyssey through the U.S. court system began shortly after its 2001 default. Argentina later offered creditors a swap of their defaulted bonds for new bonds in 2005 and 2010. The country’s take-it-or-leave-it strategy paid off, with bondholders tendering about 93% of their defaulted bonds for about 33 cents on the dollar.
However, a small group of investors led by Elliott Management Corp. affiliate NML Capital Ltd and Aurelius Capital Management held on to their bonds and sued for full repayment.
“We would gladly have settled long ago, but Argentina has never been willing to negotiate. We remain open to settlement should wiser heads prevail,” said an Aurelius spokesman.
If the court grants Argentina’s petition, it would likely hear the case in the fall, with a ruling expected by mid-2015. The justices also might also ask the Obama administration to submit its views on whether the court should hear the case, a process that could take months.
If the court declines the petition, Mrs. Kirchner faces some tough choices: pay the hedge funds in full, cut a deal, or default on about $28 billion in current bonds. A default could happen as soon as June 30, when Argentina’s is scheduled to pay $532 million in interest.
New York federal Judge Thomas Griesa ruled in 2012 that the pari passu, or equal footing, clause in defaulted bond contracts requires Argentina to treat investors who hold defaulted and current bonds equally. Last year, the Second Circuit Court of Appeals upheld Mr. Griesa’s decision, but suspended its implementation pending a high court appeal.
Argentina said in a brief to the Supreme Court that it could face more than $15 billion in claims by other holdouts with the same pari passu rights if it loses the case, raising the “imminent risk” of default. Argentina´s foreign currency reserves now stand at a 7½-year low of $28.8 billion.
The hedge funds have urged the court to reject the appeal, arguing in part that Argentina has threatened to flout an unfavorable ruling.
Few investors think a default would roil global debt markets.
“Everybody knows the Argentine risks at this point,” says James Barrineau, co-head of emerging-markets debt at money manager Schroders PLC, which oversees $446 billion in assets.
While the market might take a default in stride, such an event could change the way investors price the bonds of other countries seen at risk of defaulting, says Bryan Carter, a portfolio manager with Acadian Asset Management LLC.
The pari passu dispute isn’t the only Argentine default case the Supreme Court will consider. In April, the justices heard oral arguments in a case involving NML’s attempts to obtain bank records about Argentina’s international assets. A decision in the so-called discovery case is expected this month.
–Brent Kendall contributed to this article.
2. GUEST POST: DON’T CRY FOR ROGUE DEBTOR ARGENTINA (FT.Blog)
June 12, 2014
By Arturo C Porzecanski
José Barrionuevo, the former Barclays Capital emerging markets strategist who came up with the quantitative model that Argentina used to rationalise its punishing 2005 debt restructuring, recently wrote a guest post justifying that infamous transaction: “The framework we proposed offered a way out of default through debt sustainability, and concluded that Argentina would need roughly a 67 per cent write-off to make its outstanding debt sustainable immediately.”
The fact is that Argentina’s economy was sufficiently recovered by early 2005, largely thanks to an intervening commodity export boom, such that the government in Buenos Aires needed only a modest amount of debt-service relief from its creditors in order to regain fiscal viability. This is especially evident with the benefit of hindsight.
For example, the government’s tax revenues had already doubled in dollar terms between 2002 and 2004 and the country’s official international reserves had recovered similarly, from under $10bn in early 2003 to over $20bn by early 2005. And yet, Barrionuevo’s original simulation model was never updated to reflect the strong economic rebound under way. It was also loaded with excessively pessimistic assumptions as to what the future would bring in terms of crucial variables such as exports and tax revenues. And, unlike all prior sovereign debt restructurings, the model was never allowed to be subjected to a reality check – much less a negotiation – on the part of either private or official creditors, such as the IMF.
During 2006-2012, the economy ended up growing twice as quickly as the government’s forecasts vintage late 2004, with actual export earnings and tax revenues outperforming the gloomy official assumptions by even greater multiples. The fact that Argentina offered GDP warrants on which they later paid proved to be a small consolation, given the massive haircuts that bondholders were forced to accept.
Moreover, the self-imposed goal of making the public debt sustainable “immediately” through a massive write-off was completely misguided. Sustainability is always an objective which is to be attained over a period of several years, as we have witnessed in all the economic adjustment programmes around the periphery of Europe, where a reduction in debt ratios is to be accomplished gradually.
Indeed, by the time Argentina had settled on its demand for massive debt forgiveness, next-door Uruguay had already successfully refinanced its public debt in a creditor-friendly manner and had returned to the international capital markets, despite having had to face fiscal, currency, banking, and economic shocks fully comparable to those in Argentina. The difference was that in Uruguay the authorities used updated figures and incorporated realistic assumptions, did not aim for instantaneous cuts in their debt-to-GDP ratios and, above all, followed more sensible, confidence-building economic policies.
Therefore, it should be clear to all by now that Argentina and its financial advisers did have much smarter choices nine years ago: they should have put forth a more reasonable and credible proposal based on negotiations or at least consultations along the lines of the Uruguay refinancing, in order to avoid a holdout problem and restore their access to capital markets.
This brings us to the current holdout litigation which has tied Argentina in knots. Barrionuevo is again excessively pessimistic when forecasting the future now, in mid-2014. “A [US] Supreme Court decision adverse to Argentina would not just throw overboard its restructuring and that of Greece. It would do away with the possibility of giving many other poor countries a historic opportunity to deal with daunting debt in a sustainable way and get back on the path to growth,” he claims.
Nothing need be further from the truth. The New York District Court of Appeals has rightly dismissed those kinds of warnings as “speculative, hyperbolic, and almost entirely of the Republic’s own making.” First, the 2005 restructuring need not be affected by a ruling that is adverse to Argentina if the government were to decide to follow the court’s order to pay the litigants alongside the exchange bondholders. Second, the restructuring of Greek debt is a done and settled deal. Third, sovereigns facing external financial difficulties need not fear repercussions from the Argentina-related litigation. All they must do in order to restructure their debts successfully is avoid copying Argentina’s rogue-debtor behaviour.
Professor Arturo Porzecanski is director of the International Economic Relations Programme at American University, Washington DC. From 2000 to 2005 he was a managing director and head of emerging markets sovereign research at ABN Amro.
3. WORLD CUP FEVER MASKS ARGENTINA’S AILMENTS (Financial Times)
By Benedict Mander in Buenos Aires
June 11, 2014
For Argentina, it all kicks off on Thursday. The country’s team under Lionel Messi – perhaps the world’s greatest player – is second favourite behind host Brazil to win the World Cup, the third time it would have done so. On the same day the US Supreme Court will consider a case that has pitched Argentina against a group of “holdout” creditors seeking repayment of $1.3bn of defaulted debt from Argentina’s sovereign default in 2001.
Separately, each contest will have an economic impact. But football and politics have become entwined in Argentina as the government is accused of using sporting glory to divert attention from a range of problems that includes one of the world’s highest.
Jorge Capitanich, Argentina’s cabinet chief, recently expressed hopes that “people won’t talk about anything except football” during the tournament. Pablo Alabarces, an Argentine sociologist, said it was “a paradox that football does not have political consequences, but politicians remain convinced that it does”. He pointed in particular to the move by president Cristina Fernández effectively to nationalise football broadcasting five years ago by making games available for free alongside government adverts.
The stakes in the Supreme Court case are high. HSBC has warned investors to expect “a strong [market] rally in the case of a decision favourable to Argentina . . . and a strong sell-off if the petition is denied”.
While a resolution of the issue would allow the country to gain much-needed access to capital markets, a rejection could plunge the country into another debilitating default, heaping more misery on a malfunctioning economy that is expected to slip into recession this year.
Argentina’s high inflation rate is something the government appears to hope Argentines will forget amid the heat of the World Cup.
It is assumed that sporting victories lead to spikes in consumption among jubilant supporters. But the tournament could actually exacerbate Argentina’s problems, as between 50,000 and 100,000 of its team’s fans flood in to Brazil, taking hard currency with them. The longer the national team stays in the competition, the greater the demand for dollars.
And that contingent will include the notorious “barras bravas”, or “tough gangs”, who are behind some of the worst football violence in the world, causing an average of five deaths a year in Argentina over the past three decades. Mrs Fernández once described them as “marvellous”, but their escapades in Brazil have the potential to add to her headaches.
Argentina could also find that its problems return with a vengeance after the final whistle. Scandal has engulfed Amado Boudou, the vice-president who is accused of abusing his power to gain control of a bankrupt banknote printing company. On Monday he became the first sitting vice-president since the military dictatorship fell in 1983 to be questioned over criminal allegations by a judge, who will now decide whether to proceed to trial.
These challenges come as Ms Fernández has notched up a string of achievements in her attempts to win back the confidence of international investors. The government recently signed a deal with the Paris Club of creditor nations to pay back $9.7bn in defaulted debt.
Some observers believe this could lead the Supreme Court to view Argentina more favourably, although a leaked memo from the country’s lawyers advising Buenos Aires to default should the court reject its case may have the opposite effect.
The government has also stabilised an alarming decline in its foreign exchange reserves, which last year fell by about $1bn a month.
It is not just the government that is hoping to cash in from the national team’s performance. The local operations of ICBC, a Chinese bank, is offering free instalments on loans to account holders for every World Cup match Argentina wins.
Even the barras – for whom football is as much a business opportunity as a sport thanks to their involvement in ticket touting and player extortion – will hope to use the World Cup to their advantage. For Argentina, more than most other countries, the World Cup is about more than just football.
4.ARGENTINA AND BRAZIL MODIFY AUTO ACCORD TO REVIVE FALLING TRADE (Bloomberg News)
By Charlie Devereux
June 11, 2014
Argentina and Brazil agreed to modify a bilateral vehicle trade accord in a bid to kick-start plunging trade between the neighboring countries.
The two countries agreed to extend an agreement on the import and export of vehicles and auto parts for one year while reducing a so-called flex clause to 1.5 from 1.95. Under the current agreement, for every $1.95 Brazil exports (ARVETOTL) to Argentina, it must import $1 from Argentina in order for both countries to benefit from tax exemptions.
Exports of vehicles assembled in Argentina for companies including Volkswagen AG, Renault SA and Ford Motor Co plunged 39 percent in May as Brazil’s economy grew 0.2 percent in the first quarter, crimping demand. While the reduced flex clause may appear to benefit Argentina, Brazil will also benefit since its neighbor had been blocking imports amid reserves that have fallen near an eight-year low this year, said Lorenzo Sigaut Gravina, chief economist at Buenos Aires-based consultancy Ecolatina.
“Industrial trade between Argentina and Brazil was plummeting,” Sigaut Gravina said in a telephone interview. “Beyond the flex, what this agreement means is a return to trade that’s less controlled.”
Argentina posted the smallest first-quarter trade surplus since 2000, the year before it defaulted on a record $95 billion, as exports fell 16 percent in March. International reserves, which President Cristina Fernandez de Kirchner has used to pay foreign debt obligations since 2010, have fallen 25 percent in the past year to $28.8 billion.
Brazil and Argentina said they’ll begin working on negotiations to sign a five-year agreement starting July 2015. Under the agreement, signed following a meeting between Argentine Economy Minister Axel Kicillof and Brazilian Industry Minister Mauro Borges, Argentine sales to Brazil mustn’t fall below 11 percent of total vehicle imports while Brazil will have a 44.3 percent share of Argentine vehicle imports.
5. TOTAL SAID DISCUSSING SALE OF ARGENTINE GAS PIPELINE STAKE (Bloomberg News)
By Pablo Gonzalez
June 11, 2014
Total SA (FP), France’s largest oil company, is holding talks to sell its indirect stake in Transportadora del Gas del Norte, Argentina’s second-largest gas pipeline operator, three people with knowledge said.
Proceeds from the sale of the Argentine unit of the Paris-based company will be used to boost oil and natural gas exploration in Argentina, two of the people, who asked not to be identified as talks are private, said. Total’s press department in Paris declined to comment in an e-mailed response to questions.
Total Austral, Argentina’s largest gas producer, said Oct. 24 it will lead a $1.2 billion project to produce gas in southern Argentina. On April 7, Total Americas Director Ladislas Paszkiewicz said the company was seeking lower costs to boost shale investment in Argentina’s Vaca Muerta formation, the world’s second-largest shale gas reservoir.
Gasinvest SA is the holding company that has a 56 percent stake in TGN. Total’s partners in Gasinvest include Tenaris SA (TEN) controlled Tecpetrol SA and Cia. General de Combustibles, or CGC, owned by Argentina’s richest billionaire Eduardo Eurnekian.
6. ARGENTINE BANKS SLUMP AFTER CENTRAL BANK CAPS LOAN RATES (Bloomberg News)
By Camila Russo
June 11, 2014
Argentine banks fell in New York trading after the central bank capped consumer interest rates yesterday, potentially damping profits for lenders.
Grupo Financiero Galicia SA’s American depositary receipts sank 7.2 percent to $13.97 at 1:55 p.m. in New York, the biggest decline since January, while Banco Macro SA retreated 5.2 percent and BBVA Banco Frances SA lost 5.1 percent. The benchmark Argentine Merval fell 0.2 percent.
After calls from Argentina’s Economy Minister Axel Kicillof and Cabinet Chief Jorge Capitanich to end “usury” by lenders, the central bank led by Juan Carlos Fabrega decided to regulate rates on personal loans and credit cards. The government is trying to reactivate lending amid sluggish growth in South America’s second-largest economy, which is forecast to expand at the slowest pace in the hemisphere after Venezuela, according to the International Monetary Fund.
“The new rules are negative for the profitability of banks under coverage, particularly in a recessive economic environment, in which delinquency rates are poised to increase,” Raymond James Argentina analysts Federico Rey-Marino and Santiago Ruiz Guinazu wrote in a report today.
Galicia and Macro may see profit eroded the most, since credit lines targeted under the new rules account for about 60 percent of their loan portfolios, according to Raymond James. The figure is 50 percent for Banco Frances.
Peso Slide
Bank loans to the private sector rose 29 percent in April from a year earlier, a slower pace than the 42 percent increase from in the same period a year ago. Banco Macro’s first-quarter profit quadrupled to 1.19 billion pesos from a year earlier, after a devaluation of the peso in January boosted the value of its foreign-exchange holdings.
Interest on personal loans can’t exceed 1.25 to 2 times the rate of the central bank’s 90-day notes, known as Lebacs, according to resolutions published yesterday. Lebacs yield about 26.9 percent. Caps will result in rates of 34 percent for car loans, 39 percent for personal loans and 49 percent for credit cards, Raymond James said.
7. US SUPREME COURT JUSTICES TO DETERMINE NEXT STEPS IN ARGENTINA’S DEFAULTED DEBT CASE (Fox News)
By Michael Warren
June 11, 2014
BUENOS AIRES, Argentina –  The U.S. Supreme Court is meeting privately Thursday to determine how to respond to Argentina’s appeal of lower court decisions ordering it to repay more than $1.3 billion in defaulted bonds.
U.S. lower courts have ordered Argentina to pay that amount plus interest to hedge funds led by billionaire Paul Singer’s NML Capital Ltd., which snapped up the debt left unpaid when the Argentine economy crashed in 2001-02 and went to court seeking payment in full. Holders of 92 percent of the debt agreed long ago to accept bonds of lesser value in exchange for regular debt payments.
The justices aren’t expected to announce their decision until next week. The court could ask for input from President Barack Obama’s administration or send the case back to the New York appeals court for more information on how to interpret state law. Although it is highly unlikely, the court could also decide whether to take the case or turn it down.
Argentina has warned that being forced to pay off the old debt would force it into a new default. But some analysts dispute that argument, saying Argentina would be able to meet the payments despite its economic troubles.
“I believe that Argentina will still be solvent if the Supreme Court decision favors the holdouts and Argentina has to pay these claims. From a macro standpoint the capacity to pay is there,” said Alberto Ramos, who analyses the country for Goldman Sachs.
“If the (Argentine) authorities were able to put the issue of the holdouts to rest, they would benefit from broader access to more conventional and stable domestic and foreign financing sources,” Ramos added. “This and a bit of fiscal consolidation, which would also benefit the economy tremendously, would likely put Argentina in a position to honor the claims of the holdouts without necessarily sliding into another crisis.”
Restoring Argentina’s sense of pride and sovereignty after the economic collapse has been the central goal of President Cristina Fernandez and her late husband and political predecessor, Nestor Kirchner. The presidential couple negotiated or paid off most of Argentina’s defaulted debt, nationalized the pension system, and retook control of the national airline and oil company.
They also kept energy cheap through subsidies and dug deep into the treasury to redirect revenue to the poor through handouts.
For several years, Argentina enjoyed annual growth of 7 percent fueled by the high prices that foreigners paid for the country’s soybeans and other agricultural commodities. But now Argentina suffers from a shortage of dollars, one of the world’s highest inflation rates and an inability to tap into global credit markets because its debt default remains unresolved.
8. PIKETTY IN ARGENTINA (The Hill Blog)
By Daniel Friel
June 11, 2014
When members of Congress receive delegations from opposition parties from Argentina this week, they should have a clear understanding of what is truly motivating the existing government in this country.
Argentina´s alternative model to neoclassical policies is collapsing in front of our eyes even as the world has been inspired by the recent work of Thomas Piketty to look for new economic models that could reign in the power of inherited wealth and reinvigorate democracy. At first sight, Argentina would seem to be an interesting place to look for an alternative model. The left-leaning policies implemented by the government of Nestor Kirchner after the economic collapse in late 2001 led to a slight decline in the percentage of income controlled by the top 1 percent of the population in 2004. Exactly such declines are what Piketty claims could be an indication of the re-invigoration of democracy. But the recent orthodox turns in economic policy seem to have lifted the veil on this so-called model, revealing a pragmatic group of politicians seemingly willing to do anything to hang onto power.
 In 2008 the government nationalized Argentina´s version of Social Security. It had been privatized by the right-leaning government of Carlos Menem in the 1990s. The government of Cristina Kirchner claimed that these funds were nationalized to ensure that private investment companies were not absconding with the retirement funds of the poor. Nevertheless, these funds have been used to for a variety of activities including financing the federal police, the national air force, and subsidies for the poor. By owning of companies this government has also been able to force its way into board meetings and demand that some companies adopt a more pro-government posture.
The administration of Cristina Kirchner also nationalized this country´s national airline, Aerolineas Argentinas, in 2008. But since that time it has had to fund it to the tune of almost US$ 4 billion. It is hard to see how a national airline that is used almost exclusively by the wealthy and international tourists promotes greater democracy. In 2012 this government nationalized YPF, the largest oil company in this country, supposedly as a means to address a burgeoning energy crisis. But grabbing control of this company has not solved this problem. Argentina imported US$ 5.460 billion in natural gas in 2013, up from US$ 920 billion in 2010.
Faced with a increasingly dire economy, the administration of Cristina Kirchner has been forced to to make a series of rather orthodox policy changes that will hit the poor the most. These are just the people she claims to most represent. In order to address shortfalls in cash, the Kirchner government recently introduced legislation that will dismantle subsidies on gas and electricity for the vast majority of Argentines. People`s electric and gas bills will go up by between 16.7 percent and 162 percent. And starting in August water bills will go up between 70 percent and 400 percent. These reductions in subsidies are likely to provide an extra push to inflation, estimated to be around 30 percent, even as it reduces the disposable income of the middle class and the poor.
This current about-face in economic policies and the governments decision to stop doctoring the statistics used to calculate inflation are related to the apparent desire of the Argentina government to reach a rapprochement with the International Monetary Fund (IMF). By making up with the IMF Argentina would be on its way to returning to international financial markets. The cynicism of this government in this case smacks one in the face. Cristina and Nestor Kirchner consistently demonized this organization. Their supposed model was said to be based on the need to declare independence from such “capitalist” organizations.
Anyone interested in seeking alternatives to the neoclassical model made famous by the Chicago Boys should look carefully at what is going on in Latin America. But we should avoid being seduced by large proclamations of social justice made by leaders like the Kirchners. Their so-called model is a monument to the power of cynicism instead of one that genuinely promotes the cause of the poor and social justice. As Argentina´s house of cards crumbles, it is time to demand more of self-proclaimed progressive leaders. They would do well to take the work of Pikkety to heart and, in his words, start putting capitalism to work for democracy instead of the other way around.
Friel is an assistant professor of Management at the Universidad de San Andrés in Buenos Aires, Argentina and specializes in how institutions in Latin America shape the strategies of firms. 
9. ARGENTINA, BRAZIL SIGN NEW CAR TRADE PACT (Reuters News)
11 June 2014
BUENOS AIRES, June 11 (Reuters) – Argentina and Brazil signed a new 12-month bilateral car trade pact on Wednesday giving Buenos Aires more favourable terms in view of its shrinking trade surplus that is draining limited foreign reserves.
Cars make up half of the $36 billion trade between the neighbours, which have had numerous commercial disputes in recent years.
The revival of the auto agreement is crucial to restore trade volumes and help close widening gaps in their external accounts. The pact expired last year during a dispute over its terms.
The pact will allow Brazil to export $150 worth of cars for each $100 in autos it imports from Argentina, without paying tariffs.
The previous deal favored Brazil at a ratio of 1.95 to 1, but both countries failed to reach an agreement before it expired last year. Argentina had initially proposed to lower the ratio to 1.3 to 1.
Brazil said the accord was also beneficial because it should increase the volume of bilateral trade.
“The key issue is the volume of trade, and the ratio agreed favours the free flow of commerce between both countries,” Brazilian Trade Minister Mauro Borges told a news conference in Buenos Aires.
Both countries agreed to freeze their current market share. That means Brazilian cars cannot account for more than 44 percent of sales in Argentina, while Argentine cars cannot be more than 11 percent of sales in Brazil.
Brazil and Argentina are important markets for automakers such as Italy’s Fiat SpA, Germany’s Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co.
10. MESSI HAS MANY ACCOMPLICES IN BID FOR WORLD CUP (The New York Times)
By Rob Hughes
12 June 2014
Argentina was ravaged in December and January, first by power outages and then by looting, after police officers left the streets unguarded as they protested for higher pay in a country beset by soaring inflation and hard economic times for much of the population.
But on the soccer field, Argentina boasts enough striking riches to power the team to win the World Cup starting this week in neighboring Brazil.
There isn’t only Lionel Messi, although he is the best of them and the most beguiling player on the planet. At the 2010 World Cup, he sometimes looked to be alone for Argentina. This time, though, the team has a number of options, including Sergio Agüero, Gonzalo Higuaín, Ezequiel Lavezzi, Rodrigo Palacio and, from the wing, Ángel di María.
The Brazilian star Neymar would no doubt crave any such accomplices in his team’s forward line. Of course, Argentina needs to find the balance in midfield and defense behind that rich goal potential.
None of those Argentine stars earn their fortune at home, where the soccer clubs struggle financially along with the rest of the nation.
Messi left for Barcelona at age 13. Agüero matured at Atlético Madrid and is now the darling of Manchester City; Lavezzi is Paris Saint-Germain property; Higuaín is at Napoli, the club where the Argentine great Diego Maradona finished his career; Palacio plays for Inter Milan, and Di María for Real Madrid.
The gravitation from Argentina to Europe’s rich paymasters is a no-brainer. In 1986, when La Albiceleste won the World Cup in Mexico, only three of the starting 11 in the final were employed abroad. Today, only one man on the entire roster, the reserve goalie Agustín Orión, has no experience outside his homeland.
In part, that explains why Messi is not, yet, the idol back home that Maradona was. Argentina must win this trophy for him to compare, and even then there are those who find him too distant, too nice, to represent the turbulent soul of Argentina in the way that Maradona did, and still does.
It’s possible to imagine Messi dancing through an entire defense to score, as Maradona did in successive games, against England and Belgium, en route to the 1986 final in Mexico. But who would ever expect Messi to fist the ball into the goal, as Maradona did against England in Mexico?
That was the roguish side of Maradona, who famously claimed that the goal was scored by the hand of God.
That was the Maradona who once replied in an interview request with an eye-bulging rant, shouting in reference to the contested Falkland Islands, called Malvinas in Spanish, ”Give us back the Malvinas, you blank-blank Britisher!”
At the time, Maradona was a symbol for his country. Carlos Menem, Argentina’s president, even flew to Italy to meet with his star and bestow upon him the title Ambassador for the Sporting World.
A year or so later, when Maradona’s drug dependency deepened, Menem and his sports secretary, Victor Lupo, said in an interview in Buenos Aires that they wanted to save ”this boy” from himself. They hoped to pass a law to prevent teenage soccer players from transferring abroad and losing touch with their families.
The law was never passed. The Argentine soccer authorities bristled at the suggestion of political interference. They would fight for the right of their boys to go abroad and thus make their often impoverished families rich.
Argentina’s clubs, like many across South America and Africa, had by then grown dependent on the money such trading of potential star players, even schoolboys, brought them. The Argentine Soccer Association president, Julio Grondona, said he would fight anyone, from Menem down, who tried to block that exchange.
Grondona, now 82, has led the Argentine association since 1979 and is the longtime chairman of FIFA’s finance committee.
He knows the mix of sports, sports politics and national politics better than most. He is now seeking Argentina’s second World Cup under his tenure, and its third since 1978, when the country, ruled at the time by a military junta, both staged and won the tournament.
That Argentina team had only one player who lived abroad: Mario Kempes, who had followed his fortune to Valencia in the Spanish league. The national team’s coach, César Luis Menotti, had the belief — old-fashioned even in that era — that he needed home-based players to imbue the squad with the high-tempo nationalistic pride he thought could win the World Cup.
Kempes was the one exception, but his grace, his speed and his eye for goals were truly exceptional. Kempes scored six goals during the tournament, including two in the final, which La Albiceleste won, 3-1, against the Netherlands. It felt that night as if the whole of the Argentine nation was inside the Monumental stadium in Buenos Aires and as if more than a soccer trophy was at stake.
So Kempes, the big man with the flowing dark hair and a matador’s side step, was the outsider who started the trend followed by Maradona and now by Messi, Agüero and the other Argentines. The message is clear: You can go abroad. You might earn more in a year than the home-based players can expect over an entire career. And if you bring the goals ”home” (and Brazil is only just over the border) all will be forgiven.
Argentina is a country in which a Maradona or an Agüero can rise from the barrios, where there is often little in childhood to stop a child from practicing soccer skills from dawn until dusk.
They might not be tall (Agüero measures 1.72 meters, or 5 feet, 8 inches, only 2.5 centimeters taller than Messi or Maradona) but instinctively they know how to dodge and weave and strike the ball.
It’s a habit that has taken South Americans all over the world. And one that has brought them to perform better in World Cups in the Americas than Africans, Asians, Europeans or North or Central Americans. Of the seven World Cups held in the Americas, Brazil has won three times, Argentina twice, and Uruguay twice.
Absence simply makes the heart grow fonder to come back a winner.

ARGENTINE UPDATE – May 27, 2014

28 mayo, 2014

ARGENTINE UPDATE – May 9, 2014

11 mayo, 2014
1. ARGENTINA’S YPF POSTS 129% JUMP IN FIRST-QUARTER PROFIT (The Wall Street Journal Online)
By Taos Turner
8 May 2014
State-Run Energy Company Reports a 6.8% Rise in Oil Production and an 18.5% Increase in Natural Gas Output
BUENOS AIRES—Argentina’s leading energy company, YPF SA, said Thursday that its first-quarter profit more than doubled, while oil and natural gas output continued to rise.
The state-run company posted a quarterly profit of 2.88 billion Argentinian pesos ($359 million), up 129% from the same period a year earlier.
The leap comes after the company reported an 88% increase in net profit for the fourth quarter.
YPF said oil production rose 6.8% and natural gas output rose 18.5% in the first quarter. The company said output is up because it is investing more in exploration and production.
In the first quarter, YPF invested 9.7 billion pesos, or 127% more than it did a year prior. That doesn’t include what it spent to acquire assets from others companies. In February, YPF agreed to pay $852 million for all of Apache Corp’s. oil and gas operations in the South American country.
Still, the total production of oil and gas from acquired assets, including those from Apache, represents less than 3% of YPF’s overall output.
YPF has 69 active drilling rigs today, compared with 52 a year ago and 25 in the first quarter of 2012.
The company produces over a third of Argentina’s oil and gas and accounts for more than half of the fuel sold in Argentina.
Argentina ranks second in the world, behind China, in potentially recoverable shale-gas reserves, with 802 trillion cubic feet, according to a study last month by the U.S. Energy Information Administration. Argentina also ranks fourth in shale oil with an estimated 27 billion barrels.
2. INVESTORS TO SUPREME COURT: DENY ARGENTINE DO-OVER (The Washington Post)
May 8, 2014
BUENOS AIRES, Argentina — Argentina’s opponents have filed their last arguments with the U.S. Supreme Court, urging justices to deny the South American government’s appeal of a $1.4 billion debt ruling because President Cristina Fernandez has repeatedly vowed not to honor any decision that goes against her.
Argentina wants the court to overturn a ruling it says would provoke a catastrophic default by forcing it to pay $1.3 billion plus interest in cash to the investors it calls “vulture funds.” These investors, led by billionaire Paul Singer’s NML Capital Ltd., snapped up Argentina’s defaulted debt as its economy crashed a decade ago and have litigated ever since, seeking payment in full plus interest even after 92 percent of other bondholders agreed to provide generous debt relief in exchange for regular payments on new bonds.
“Argentina already has made clear that it will not obey any adverse decision on the questions it presents,” reads NML’s brief, filed just before Wednesday night’s deadline.
“Argentina ultimately is not interested in any court’s views concerning those questions. By Argentina’s lights, it has the final word, and it will recognize a judicial ruling only if it accords with Argentina’s conclusions,” NML said.
The “Aurelius Respondents,” another group of hedge funds and holding companies based in the Cayman Islands and the U.S. state of Delaware to avoid taxes and scrutiny, urged the justices to deny Argentina’s “do-over” request, saying “a chorus of disinterested parties has recognized that Argentina is without peer in its mistreatment of private-sector creditors.”
Robert Raben, who lobbies for the holdouts as executive director of the American Task Force Argentina, said Thursday that Argentina has failed to honor 114 adverse court rulings since its 2002 default, and also has refused to pay more than 30 settlements ordered by World Bank arbitrators.
President George W. Bush’s attorney general, Michael Mukasey, also filed a brief, saying the justices shouldn’t waste their precious time on Argentina, which “has put itself in the position of a fugitive from justice who eludes law enforcement authorities while seeking to press an appeal.”
Argentine Cabinet chief Jorge Capitanich dismissed these arguments, saying the funds have spent millions of dollars on “aggressive and bad-faith tactics.”
Argentina has one more chance to respond before the justices meet privately in June to decide how to respond. The court will likely announce days later whether it will hear the appeal, turn it down, ask for input from the Obama Administration or send the case back to the New York appeals court for more information.
3. ARGENTINA’S BONDHOLDERS URGE AGAINST SUPREME COURT APPEAL (HedgeWorld News)
By Nick Brown and Lawrence Hurley
8 May 2014
WASHINGTON (Reuters)—Holders of Argentine sovereign debt on Wednesday [May 8] asked the U.S. Supreme Court not to hear that country’s appeal of lower court decisions ordering it to pay them $1.33 billion in a case Argentine officials warn could force it to default on its sovereign debt.
Wednesday’s filing, which came in response to Argentina’s petition in February to be heard by the highest U.S. court, was made by a group of so-called “holdout” bondholders who refused to accept Argentina’s two debt-restructuring offers after the country defaulted on $100 billion in 2002.
Argentina is seeking to reverse the rulings that say the country must make full payment to the group, which is led by hedge funds Aurelius Capital Management and NML Capital Ltd., a unit of billionaire Paul Singer’s Elliott Management Corp.
In Wednesday’s court filing, lawyers for the bondholders called the case “undeserving of review,” knocking Argentina’s position that the lower court violated the Foreign Sovereign Immunities Act by allowing for the arrest in the U.S. of property belonging to a foreign state.
The lower ruling, in the U.S. Second Circuit Court of Appeals, “does not exercise dominion over any sovereign property,” the bondholder group said, “but merely holds Argentina to its commitment to treat its debts to [the bondholder group] equally with its other obligations.”
The group added that Argentina may wind up ignoring any court ruling anyway.
“By Argentina’s lights, it has the final word,” the group said, which is “reason enough” not to hear the case.
A group of former U.S. federal judges, including Michael Mukasey and Michael Chertoff, who served respectively as Attorney General and Secretary of Homeland Security under former President George W. Bush, also urged the Supreme Court not to hear the matter. In a so-called “amicus” brief, the former judges, who are not parties in the case, suggested Argentina is trying to “undermine the authority of judicial proceedings” by saying it won’t comply with adverse rulings.
“Argentina has put itself in the position of a fugitive from justice who eludes law enforcement authorities while seeking to press an appeal,” said the judges.
Argentina has said the bondholder group tried to profit by buying its debt at a deep discount after its default, then attempting to thwart the country’s efforts to restructure through debt swaps.
Creditors holding about 93 percent of Argentina’s bonds agreed to participate in the swaps, in 2005 and 2010, accepting between 25 and 29 cents on the dollar.
The outcome of the closely watched case could impact future sovereign debt restructurings. The Supreme Court justices are likely to have a first look at whether to take the case sometime in June.
The case is Argentina v. NML, case No. 13-990, in the U.S. Supreme Court.
4. YPF QUARTERLY PROFIT MORE THAN DOUBLES AFTER REPSOL’S DEPARTURE (Bloomberg News)
By Pablo Gonzalez
May 8, 2014
YPF SA (YPF), Argentina’s largest company, said first-quarter profit gained 129 percent on higher oil and gas production.
Net income increased to 2.88 billion pesos ($360 million), or 7.34 pesos a share, in the quarter from 1.26 billion pesos, or 3.2 pesos, a year earlier, Buenos Aires-based YPF said in a statement to Argentina’s regulator yesterday.
President Cristina Fernandez de Kirchner’s government gave Repsol SA bonds yesterday with a market value of $4.67 billion for the YPF nationalization. Since the expropriation, YPF secured a venture with Chevron Corp. to jointly develop part of Vaca Muerta, a Connecticut-sized formation in southern Argentina considered the world’s second-largest shale gas deposit and fourth-largest shale oil field which helped the company to boost crude and gas production.
Quarterly crude output increased 6.8 percent from a year earlier, YPF said. Natural gas production rose 19 percent to 37.2 million cubic meters a day. Total output gained 11 percent. Argentina seized the 51 percent YPF stake in April 2012 after claiming that Madrid-based Repsol failed to replace reserves and output was declining.
In exchange for the bonds, Repsol is dropping all legal action against Argentina. The Spanish producer had threatened to sue any companies that partnered with YPF in Argentina while it sought compensation for the nationalization.
Repsol Departure
The compensation, paid with bonds totaling $5.32 billion in nominal value maturing as late as 2033, is less than half the $10.5 billion the company sought initially. Repsol, which won’t be able to get more than $5 billion if it sells the bonds before maturity, on May 6 sold a 12 percent stake in YPF through Morgan Stanley for $1.3 billion.
YPF rallied as much 10 percent the following day as investors celebrated the departure of the hostile shareholder, said Carlos Aszpis, an equity strategist at Schweber & Cia. Sociedad de Bolsa SA.
“Repsol’s departure is very good news for YPF as it is much better to have several funds holding 12 percent than one single holder of such a stake,” he said in a telephone interview from Buenos Aires. “The company won’t have board members against management, which is what any minority shareholder wants.”
Repsol will keep a stake of less than 0.5 percent after the disposal.
YPF said it set aside 465 million pesos for a dividend payment to be determined later this year.
The earnings report was released after the close of regular market trading. YPF’s American depositary receipts rose 2.2 percent to $31.76 in New York. The ADRs have more than doubled in the past year.
YPF will hold an earnings conference call with investors at 8:30 a.m. New York time today.

ARGENTINE UPDATE – May 7, 2014

11 mayo, 2014

1. REPSOL SELLS MOST OF REMAINING YPF STAKE FOR $1.26 BILLION (The Wall Street Journal Online)
By Ilan Brat
7 May 2014
Sale Follows Argentina’s Compensation Agreement With the Spanish Oil Giant
MADRID—Spain’s Repsol SA said Wednesday it has sold nearly all of its remaining stake in Argentina’s largest oil and gas company, YPF SA.
In a filing with Spain’s market supervisor, the Spanish oil major said it had sold 11.86% of YPF to Morgan Stanley & Co. LLC for $1.26 billion and will be left with a less than 0.5% stake in YPF.
The sale, which was expected, comes after Repsol early this year agreed to end a legal conflict with Argentina that started in 2012 after the South American country expropriated a majority stake in YPF, eventually leaving Repsol with about 12% of the company.
Argentina has agreed to compensate Repsol with government bonds worth about $5 billion.
Repsol recently chose to refrain from renewing the two seats it held on YPF’s board, a signal that it didn’t intend to remain a big shareholder in the company.
2. SPAIN’S REPSOL SELLS YPF STAKE TO MORGAN STANLEY (The Washington Post)
May 7,2014
MADRID — Spain’s Repsol oil and gas company says it has sold an 11.86-percent stake it owned in Argentina’s YPF energy company to Morgan Stanley for 900 million euros ($1.25 billion), effectively leaving it without a stake in a company it once controlled.
Repsol SA told Spain’s market regulator Wednesday the stake represented 46.6 million shares. It said it now owns less than 0.5 percent of YPF.
Repsol recently accepted a $5 billion offer from Argentina as compensation for the country’s seizure of Repsol’s controlling stake in YPF in 2012.
Argentina claimed Repsol did not do enough to develop YPF’s resources — claims strongly denied by Repsol.
3. ARGENTINA STRIKES A DEAL WITH ENERGY FIRM REPSOL: WILL INVESTMENT FOLLOW? (The Christian Science Monitor)
By Stephen Kurczy
May 6, 2014
President Kirchner’s unpredictable policy decisions, and the uncertainty about her successor, mean investors find the Argentine market opaque and risky.
Argentina’s government says that its recent $5 billion settlement with Spanish oil major Repsol SA will clear the way for new energy investment.
Our correspondent says otherwise, based on speaking with top economic analysts and former government financial officials in Buenos Aires. Rather, multinational companies are still playing a game of wait-and-see with Argentina, even as local stock market investors are making bets that the nation will see the upside once multinationals do regain confidence in the protectionist South American nation.
“The agreement with Repsol is not enough to attract foreign investment,” says our correspondent in the Argentine capital. “Caution will continue to rule.”
That caution is based in large part by Argentina’s 2012 expropriation of Repsol’s controlling stake in Argentinian oil company YPF SA. The government approved a settlement with Repsol on April 24 for half the company’s initial request for $10.5 billion in compensation.
Cabinet Chief Jorge Capitanich said the settlement would “open the door for increased energy investment,” as reported by Bloomberg News. Mr. Capitanich also said the government will need a total of about $149 billion of investment for infrastructure projects over the next decade.
But rare is the multinational firm that has dared to invest in Argentina since the expropriation, and none have stepped forward since the settlement. Chevon Corp last year made a $1.24 billion pilot investment to develop shale deposits of Vaca Muerta in western Argentina with YPF. Chevron followed up last month with another $1.6 billion investment in the project. YPF also attracted a modest $188 million in September 2013 from Dow Chemical to jointly develop Vaca Muerta.
4. REPSOL’S $1.26BN YPF STAKE SALE ENDS ARGENTINE ENTANGLEMENT (Financial Times)
By Tobias Buck in Madrid
May 7, 2014
Repsol has drawn a final line under the Spanish energy group’s ill-fated entanglement in Argentina, with the sale of its remaining 12 per cent stake in YPF for $1.26bn.
The move comes two years after the Argentine government nationalised Repsol’s majority stake in YPF, setting off a protracted legal and political battle that only ended in February this year. The settlement involved a $5bn compensation package for Repsol, which in turn agreed to drop its legal challenge in front of an international arbitration panel.
Repsol executives said at the time that the settlement would also allow the group to finally divest its remaining minority stake in YPF, which it had kept throughout the dispute in order to maximise its leverage.
The compensation deal and YPF sale, coupled with other possible divestments, give Repsol the ability to spend as much as $10bn on acquisitions. It is looking in particular to expand in North America, and has recently looked at assets and companies in Canada, though so far without making a deal.
The group said in a regulatory filing on Wednesday that it had sold almost its entire shareholding to Morgan Stanley, in a transaction that will realise a pre-tax gain of $622m. Repsol still has a small holding of YPF shares, less than 0.5 per cent of the total, which it is planning to sell at a later date.
The Spanish group reports first-quarter results on Thursday. It expects to receive the Argentine dollar-denominated bonds that underpin the $5bn compensation package the same day.
5. REPSOL SELLS $1.3 BILLION YPF STAKE FOR ARGENTINA EXIT (Bloomberg News)
By Will Kennedy
May 7, 2014
Repsol SA (REP) sold almost all its remaining stake in Argentina’s YPF SA (YPF), marking a final break with the company two years after the government seized 51 percent of the country’s leading oil producer.
Repsol sold 12 percent of YPF through Morgan Stanley (MS) for $1.26 billion, realizing a pretax gain of $622 million, the Madrid-based company said in a statement today. Spain’s largest oil company, which reports first-quarter earnings tomorrow, retains a stake of less than 0.5 percent after the disposal.
President Cristina Fernandez de Kirchner ordered the nationalization of YPF in April 2012, alleging parent company Repsol had failed to invest enough in maintaining oil production. Argentina and the Spanish producer, which had called the seizure illegal, agreed on a $5 billion compensation package earlier this year.
Armed with the cash from Argentina and the proceeds of today’s deal, Repsol plans to spend as much as $10 billion acquiring oil and gas production assets, mainly in developed countries, Executive Chairman Antonio Brufau has said.
Repsol shares, up 7.3 percent over the past year, advanced 0.4 percent to 19.39 euros in Madrid trading by 9:11 a.m.
Last week, Repsol appointed Josu Jon Imaz San Miguel as chief executive officer, a post Brufau gave up while continuing to head the board. Imaz, who had been in charge of the refinery division, will pursue growth through acquisitions, the company said when it announced the appointment.
Argentina plans to issue as much as $6 billion in sovereign bonds to meet the compensation payment. The Spanish company has said it intends to monetize the securities within a couple of years.
6. ELLIOTT BEMOANS ‘RADIO SILENCE’ AS BONDS SOAR: ARGENTINA CREDIT (Bloomberg News)
By Camila Russo and Katia Porzecanski
May 6, 2014
At a time when billionaire Paul Singer’s Elliott Management Corp. is bemoaning the unwillingness of Argentina to negotiate a debt settlement, the nation’s defaulted bonds are soaring.
 
The securities have jumped as much as 20 percent to 53 cents on the dollar since the end of February, part of a surge in Argentine assets as the nation takes steps to shore up foreign reserves and repair ties with the International Monetary Fund, Exotix Partners LLP said. Argentine bonds issued in two exchanges since its $95 billion default in 2001 jumped 11.8 percent in that span, five times the emerging-market average.
The gains in the restructured notes are boosting optimism among holders of defaulted debt that they will receive a bigger payout in the event of an accord with Argentina, said Exotix and Caracas Capital Markets. While Elliott said last month that Argentina has responded to efforts to negotiate a resolution to their decade-long legal battle over defaulted debt with “radio silence,” newspaper Ambito Financiero reported Feb. 20 the government is weighing options to solve the dispute.
“The rally after the policy shift helped the untendereds and they should continue to catch up,” Stuart Culverhouse, an economist at Exotix, said by telephone from London. “People are seeing it as offering upside if Argentina reopens.”
Bonds Surge
Under the same terms offered by Argentina in its 2005 and 2010 swaps, current holders of the defaulted debt would receive 65 cents on the dollar, according to Exotix. In the prior restructurings, about 93 percent of the bonds were swapped at about 30 cents on the dollar at the time.
The securities in the restructuring include bonds due in 2017 and 2033 and warrants linked to economic growth. On average, prices for those securities have rallied 4.2 cents on the dollar since the end of February, buoyed by President Cristina Fernandez de Kirchner’s decision to devalue the peso, revamp economic data at the request of the IMF and compensate Repsol SA for Argentina’s seizure of its stake in oil producer YPF SA.
The extra yield investors demand to own Argentine bonds over U.S. Treasuries narrowed one basis point to 779 basis points at 11:30 a.m. New York time.
Ambito Financiero said Argentina is taking proposals from UBS AG, Goldman Sachs Group Inc. and HSBC Holdings Plc to settle with creditors, which may include swapping the bonds for new notes and buying the untendered debt from the holdouts.
Argentina’s Economy Ministry press official Jesica Rey didn’t respond to a telephone message from Bloomberg News seeking comment.
Legal Case
While Argentina hasn’t reopened the swap, Congress approved a bill in September that lets the government give investors who haven’t tendered a chance to do so. Two months later, Argentina’s Economy Ministry created a restructuring unit to assist and advise on public debt policies and participate in negotiations with creditors.
The moves came after holdout creditors led by Elliott won a case in the U.S. Court of Appeals in August that requires the country to pay owners of the defaulted bonds in full when it makes payments on $24 billion of restructured debt. Argentina is asking the Supreme Court to review the ruling, which roiled its markets on concern the nation would renege again.
The legal dispute has also kept the country from selling bonds overseas since its 2001 default. Elliott says it has $1.7 billion in unpaid judgments.
“‘Radio silence’ is the best description for the current regime’s response to our frequent requests to negotiate a resolution,” New York-based Elliott said in a letter to investors obtained by Bloomberg News. “We have no choice but to pursuing legal actions to enforce our claims.”
Bond Exile
If the lower-court order stands and Argentina obeys it, the defaulted bonds would be worth as much as 150 cents on the dollar, including accrued interest, said Russ Dallen, the head trader at Caracas Capital Markets. If the ruling is overturned, Argentina would still have an incentive to reach an agreement with holdout creditors to regain access to bond markets.
“Argentina needs to re-access international capital markets and the government knows that,” he said in an e-mail.
Hernan Yellati, the head of research at BancTrust & Co., said Argentina probably won’t reopen the swap until a new president takes office after elections next year. He favors Argentina’s restructured dollar bonds due in 2028.
“A payment to the holdouts will take some time,” he said by e-mail. “It’s something that won’t be dealt with until the next government.”
The run-up in the defaulted bond prices indicates investors are becoming optimistic Argentina will reach a settlement, said Caracas Capital’s Dallen.
“Remember that these are worthless at the moment. I mean, they pay no interest and are essentially defaulted, orphaned debt,” he said. “For them to have a bid means that someone thinks that they are going to get at least 50 cents.”
7. BRAZIL AND ARGENTINA SEEK TO EXTEND CAR PACT FOR ANOTHER YEAR (Reuters News)
By Alonso Soto and Anthony Boadle
May 6, 2014
BRASILIA, May 6 (Reuters) – Brazil and Argentina plan to extend a key bilateral auto pact for another year, but the neighbors still have to agree the extent of duty-free car trade between them, Trade Minister Mauro Borges told Reuters on Tuesday.
Cars make up half the trade between the two countries and renewal of the auto agreement is crucial to restore trade volumes and help close widening gaps in their external accounts.
Last year both countries failed to reach an agreement on the amount of cars and auto parts that can enter each country free of tariffs, based on a formula known as “flex”.
Authorities and business groups are meeting in Brasilia this week to set a new flex limit that would allow the car pact to be extended for another year.
“We have an initial understanding to extend the pact for 12 months, but we need to change the flex to give more comfort to the Argentinians,” Borges said. “However, this cannot be a flex that lowers the volume of trade.”
Previous flex rules that expired last year allowed Brazil to export $195 worth of cars and auto parts free of tariffs for every $100 that Argentina sent in the other direction.
Argentina has proposed to lower the flex to $130 worth of exports for every $100 of imports, which would reduce its deficit with Brazil, the world’s No. 4 auto market.
Brazil is holding out for a higher flex limit, but sees Argentina’s proposal as legitimate, Borges said.
A scarcity of dollars in Argentina has curbed Brazilian exports of cars, home appliances and other manufactured goods, reducing Brazil’s trade surplus last year to its lowest in over a decade. The auto sector makes up about half of the $36 billion in annual trade between Argentina and Brazil.
Trade relations between both countries have been tense over the last two years as Argentina slapped restrictions on imports to shield its shrinking trade surplus and made it hard for Argentine businesses to access dollars to pay for imports.
In the first three months of the year, Brazilian exports to Argentina have dropped 13 percent compared to the same period last year, especially sales of cars and auto parts.
The drop in exports to Argentina and lower sales in Brazil have prompted the local car industry to fire hundreds of workers across assembly lines.
Borges said that the extension of the deal and a series of measures to facilitate credit flows between the two countries should help Brazilian producers and provide liquidity to Argentine importers.
He added that the Brazilian government is also seeking ways to stimulate local banks to provide more car credit to Brazilian consumers as loan default rates drop.
Brazil has long been a source of cash for automakers such as Italy’s Fiat SpA, Germany’s Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co.
8. REPSOL EXITS ARGENTINA WITH $1.26 BILLION YPF STAKE SALE (Reuters News)
By Tracy Rucinski
May 7, 2014
* Repsol sells 11.86 percent of YPF to Morgan Stanley
* Says to make $622 million pretax capital gain
* Sales follows Argentine compensation for 2012 YPF seizure
* Repsol shares flat
MADRID, May 7 (Reuters) – Spanish oil major Repsol bid farewell to 15 years of business in Argentina with the sale of a stake in energy firm YPF to Morgan Stanley for $1.26 billion on Wednesday.
The sale, together with a $5 billion settlement with Argentina over its 2012 expropriation of a 51 percent stake in YPF from Repsol, opens a new chapter for the Spanish oil company that is likely to focus now on upstream investments.
Madrid-based Repsol is seeking acquisitions in exploration and production as it tries to increase hydrocarbons output. YPF had accounted for over half of Repsol’s production.
“We see the (YPF) divestment as a sensible move … and the realization of material cash will add to expectations that Repsol may be near to reinvesting proceeds in an acquisition opportunity,” said Deutsche Bank analysts, who have a “hold” rating on Repsol shares.
In a regulatory filing on Wednesday, Repsol said it would make a $622 million pretax capital gain from the sale of the 11.86 percent stake, which leaves it with under 0.5 percent of YPF.
Repsol Chairman Antonio Brufau has said the company would look for growth in OECD countries, with analysts tipping the United States, Canada and Norway as possible target markets.
It will also seek out assets that offer instant cash flow to compensate for the loss of its cash generating liquefied natural gas (LNG) business, sold last year under pressure from credit rating agencies to shore up capital, analysts said.
The LNG division’s absence from Repsol’s profit and loss account as of Jan. 1 is expected to weigh on the company’s first-quarter results, due to be released on Thursday.
Repsol had already removed YPF’s contribution from its profit and loss calculations in 2012 and took a 1.3 billion euro ($1.81 billion) writedown on its stake in 2013.
The company still needs to monetize $5 billion in dollar-denominated Argentine bonds that it is soon set to receive for the YPF settlement.
Repsol is already in touch with UBS, JP Morgan, Goldman Sachs and Deutsche Bank over the imminent sale of a first tranche of the bonds worth $1.5 billion, newspaper Expansion reported on Wednesday, citing unnamed financial sources. Repsol declined to comment on the report.
Analysts had estimated in February that the Argentine settlement and potential sale of the 12 percent stake in YPF would add some 3.5 euros to Repsol’s shares, which were trading around 18.60 euros at the time.
Repsol’s shares had a muted reaction to news of the YPF stake sale on Wednesday, trading flat at 19.31 euros, with analysts saying the price may already have partially reflected hopes for closure in Argentina.
Morgan Stanley may now sell the 11.86 percent YPF stake on to other investors after paying Repsol $26.90 per share, a source with knowledge of the matter said.
YPF American Depositary Shares closed on Tuesday at $28.18, implying a discount of about 4.5 percent for Morgan Stanley on the deal. ($1 = 0.7177 Euros)

ARGENTINE UPDATE – Apr 29, 2014

1 mayo, 2014


2. ARGENTINA PRESIDENT SIGNS LAW TO PAY REPSOL $5 BILLION FOR YPF SEIZURE (Platts Commodity News)


3. ARGENTINA ECONOMY: QUICK VIEW – ECONOMIC DATA DISAPPOINT (Economist Intelligence Unit – ViewsWire)


4. BRAZIL’S MANTEGA: WORKING TO BOOST AUTO TRADE WITH ARGENTINA (Dow Jones Institutional News)
5. ARGENTINIAN BIODIESEL EXPORTS SHOW MODEST DECLINE IN MARCH: CARBIO DATA (Platts Commodity News)
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1. ARGENTINA FOREIGN RESERVES SEEN RECOVERING ON EXPORT INFLOWS (Market News International)
By Charles Newbery
28 April 2014
 
Argentina’s foreign currency reserves likely will continue to gain this week on steady inflows from agriculture exports, leading to a decline in interest rates.
 
The central bank boosted reserves 3.3% in the first 24 days of April to $27.9 billion, recovering from an eight-year low of $26.7 billion at the start of the month, as farmers stepped up exports of soybeans and other crops from a large harvest, feeding dollars into the country.
 
The central bank has been using reserves to service the debt and cover rising energy imports as domestic oil and natural gas production continues a decade-long decline on weak investment, maturing reserves and few finds. Indeed, Argentina is poised in early May to import one million barrels of light crude from Nigeria, the first large shipment in two decades.
 
The government has said it will increase purchases of crude instead of diesel and other derivatives, which are more expensive and hence weigh heavier on trade accounts. The trade surplus shrank to $79 million in the first two months of this year from $800 million in the year-earlier period.
 
The central bank wants to build reserves to keep the exchange rate steady at around 8 per dollar.
 
Most economists expect the central bank could be successful in this strategy, helped too as a hike in local interest rates reduces capital flight by encouraging more savings in pesos. The central bank devalued the peso by 20% in January and has raised interest rates to nearly 30% since then.
 
Alejandro Vanoli, president of the Argentine National Securities Exchange, said last week he expects more stability this year, making it possible for the central bank to reduce interest rates to help spur lending and consumption.
 
“The economy has improved since January,” he said.
 
However, most economists warn that when crop export inflows slow in the second half of this year there could be more pressure on the peso to depreciate.
 
While the devaluation and interest rate hike has boosted investor confidence, Capital Economics warned in a note to clients last week that this newfound pragmatism may not be enough to avert a recession this year and possibly a balance of payments crisis.
 
It said concerns remain of a chronic shortage of foreign currency and rampant inflation, which private estimates suggest could surpass 35% this year.
 
The London-based economic research consultancy warned that government expenditures still must be scaled back to reduce pressure on the exchange rate and foreign reserves. And more needs to be done to encourage private investment to increase dollar inflows, it said.
 
But with President Cristina Fernandez de Kirchner trying to ride out her last two years in office, the changes may not be as deep as needed.
 
Capital Economics forecasts further devaluations this year and greater risks of financial and economic problems if export revenues are to decline on a fall in global commodity prices. Much of the economic boom between 2003 and 2011 was thanks to record prices for soybeans, the country’s biggest export.
 
The government will report March supermarket and shopping mall sales Monday, followed Wednesday by consumption of public services and construction activity for the same period.
 
Banks, financial markets and government offices will be closed Thursday for Labor Day and Friday for a bank holiday.
 
 
 2. ARGENTINA PRESIDENT SIGNS LAW TO PAY REPSOL $5 BILLION FOR YPF SEIZURE (Platts Commodity News)
By Charles Newbery
28 April 2014
 
Buenos Aires (Platts)–28Apr2014/1035 am EDT/1435 GMT   Argentinian President Cristina Fernandez de Kirchner Monday signed into law a bill to pay Repsol $5 billion for the government’s 2012 seizure of the Spanish company’s controlling stake in YPF. The law, which gained final congressional approval in the lower house April 24, authorizes Fernandez de Kirchner’s administration to pay Repsol the compensation for the 51% stake it took from Repsol.
 
Argentina will pay the company in three government bonds, according to a decree signed by the president and her chief of staff, Jorge Capitanich, and Economy Minister Axel Kicillof, who also sits on the board of YPF.
 
Opponents of the payout say that Argentina will pay more than $5 billion given that the dollar-denominated bonds will mature in the future and pay above-market interest rates.
 
Opposition Congressman Francisco De Narvaez, a millionaire businessman with presidential ambitions, said that Repsol “scored” with the agreement and Argentinians “lost.” ‘It’s a lie that they are going to pay only $5 billion,” de Narvaez said Monday on local Radio Mitre. “We are going to wind up paying for years an amount that nobody knows.” Supporters of the payment package, which has gained the approval of Repsol’s board and shareholders, said this will help YPF to broaden its access to foreign financing and partners. YPF needs billions of dollars in funds as well as expertise and technology to develop the country’s shale resources, estimated at among the world’s largest. The US Energy Information Administration says the country holds 27 billion barrels of shale oil resources and 802 Tcf of shale gas, far more than the proven oil and gas reserves of 2.5 billion barrels and 12 Tcf, respectively.
 
YPF has arranged a shale partnership with Chevron to invest as much as $16 billion, while smaller ones are in play with Dow Chemical and Argentina’s Petrolera Pampa. Others are under discussion with Pluspetrol, the third-biggest oil producer in Argentina, and Malaysia’s Petronas.
 
YPF is seeking to turn around a 6% annual slide in oil and gas production that has led a national decline over the past decade, leading to shortages and a surge in energy imports.
 
  
3. ARGENTINA ECONOMY: QUICK VIEW – ECONOMIC DATA DISAPPOINT (Economist Intelligence Unit – ViewsWire)
28 April 2014
 
Event
 
The latest available data point to further trouble for policymakers. According to external-trade data released on April 25th, the trade surplus plummeted in the first quarter of 2014, to just US$120m-down from US$1.5bn a year earlier and the lowest surplus in any quarter since 2000. Meanwhile, industrial-production figures also released on April 25th show output falling by 1.8% in seasonally adjusted month-on-month terms and by 6% year on year in March, its steepest year-on-year decline since 2002.
 
Analysis
 
There was evidence in the March data that February’s devaluation had taken a toll on imports: consumer-goods imports were down by 17% in the month. Capital-goods imports also fell, albeit less dramatically. However, the country’s continued energy crisis saw the fuel-import bill rise by 17% in the month, limiting the decline in the total import bill to 4%.
 
Export earnings, meanwhile, plummeted, falling by 16% in March. Primary product exports suffered on the back of falling volumes and weaker global soft-commodity prices. Export earnings from manufacturing also fell substantially, owing largely to difficulties in the automotive industry, as exports to Brazil, Argentina’s key export market, were held back by weak demand there and by the recent expiry of the automotive complementarity agreement between the two countries.
 
The same factors were to blame for the poor industrial production figures. It is too early for the boost to competitiveness from February’s devaluation to have had an impact, and, with inflation accelerating in the meantime, further currency depreciation will, in fact, be necessary for a turnaround in industrial production and in the trade balance.
 
 
4. BRAZIL’S MANTEGA: WORKING TO BOOST AUTO TRADE WITH ARGENTINA (Dow Jones Institutional News)
By Rogerio Jelmayer
28 April 2014
 
SAO PAULO–Brazilian Finance Minister Guido Mantega on Monday said the government is “working” to reduce trade barriers with Argentina in a bid to increase auto exports, after two big car makers announced plans to furlough employees last week.
 
“Right now the auto industry’s difficulty is in exporting to Argentina,” Mr. Mantega said at an event in Sao Paulo. “There was a reduction there and we’re working to make more imports by Argentina viable. We’re working on a solution.”
 
Mr. Mantega didn’t elaborate on specific measures that could be taken to boost trade with Argentina.
 
The economy of Argentina, Brazil’s main trade partner for vehicles and auto parts, ground to a halt early this year amid a currency devaluation, high inflation and widespread labor strikes, hitting demand for new cars.
 
The situation there has come at an inconvenient time for Brazilian auto makers amid signs of weakness in the world’s fourth-largest vehicle market. Car sales fell 0.9% last year and 2.1% in the first three months of 2014, following a decade of strong growth, as the local economy has stagnated.
 
Two of Brazil’s main global auto makers, Volkswagen and Fiat, said last week that they plan to put a total of at least 2,600 workers on temporary leave due to slack demand. Daimler AG’s Mercedes-Benz, meanwhile, confirmed Friday that it has launched a voluntary severance program that, according to the company’s labor union, is expected to reach around 1,500 employees.
 
Noting that the auto industry is one of the biggest investors in Brazil, Mr. Mantega said the government is looking for ways to prop up financing for domestic car purchases.
 
“While it used to be possible to obtain an auto loan with a down payment of 20% or 30% of the total value, today banks are demanding an average of at least 50%,” Mr. Mantega said. “What’s needed to increase consumption is credit.”
 
5. ARGENTINIAN BIODIESEL EXPORTS SHOW MODEST DECLINE IN MARCH: CARBIO DATA (Platts Commodity News)
By Sean Bartlett
28 April 2014
 
London (Platts)–28Apr2014/103 pm EDT/1703 GMT     Members of the Argentinian Biofuels Association, or CARBIO, exported 85,000 mt of biodiesel in March, a 5.2% fall compared with the same period in 2013, according to data from the industry body Monday.
 
CARBIO members account for the vast majority of exports from the country, giving a good indication of export values before official quarterly government data is released.
 
Separate fixture data received in March indicated that around 37,000 mt was fixed toward the US on the vessel Alkiviadis, while 28,000 mt was sent to Spain on the Ghetty Bottiglieri. The remainder was to sent elsewhere in South America or to unknown destinations.
 
According to Platts cFlow vessel-tracking software, the Alkiviadis went to Barcelona while the Ghetty Bottiglieri is en route to Singapore after leaving La Plata, Argentina, at the beginning of April.
 
The material sent to Barcelona was likely to be used for discretionary blending into high sulfur gasoil, a practice which takes place when fuel suppliers try to boost margins by increasing the amount of biodiesel or other economically viable components used in gasoil and diesel.
 
It is unlikely to be customs-cleared into the EU due to anti-dumping duties introduced in November on Argentinian product of between Eur216/mt and Eur245/mt.
 
The Singapore-bound vessel was likely to have been fixed during a spike in palm methyl ester prices versus gasoil in mid-March, a European trader said. The spread between Malaysia Bursa crude palm oil futures and ICE gasoil futures, or PO-GO, peaked at minus $9.49/mt at the Singapore Platts market close on March 19, the highest since Platts began the assessment in July 2013.
 
“When PO-GO was minus $10/mt, some {Argentine] SME [soy methyl ester] resellers would land [in Asia] much cheaper than [local] PME,” the trader said.
 
The material was likely to be used for discretionary blending purposes at the Singapore hub and then sent onto China, Australia or one of the other major demand centers.
 
Meanwhile, 7,159 mt of biodiesel produced by CARBIO members was consumed in Argentina during March, according to the same CARBIO data. A local analyst source estimated consumption from other local biodiesel producers at 44,877 mt, bringing the total to 52,036 mt, up from 36,284 mt the previous month.
 
This represented a blending incorporation rate of 5.11%, up from 4.24% in February but still some way off the 10% mandate introduced by the Argentinian government at the beginning of February.
 
Argentina’s President Cristina Fernandez de Kirchner last week asked Congress to approve a proposal to exempt biodiesel from local consumption taxes worth 41% at the pump to boost demand and help counter the negative effects of EU anti-dumping duties on the Argentine biodiesel industry.
 
 
 
 
 




— 

Overall, though, we are outmatched diplomatically. Obama’s foreign policy apparatus is bloated at the White House level, over-politicized at the State Department and dismissive of the expertise to be gained from career diplomats, with decision-making tending toward groupthink in an echo chamber. And if the White House believes it can achieve its goals toward Moscow by sending TV soap opera producers, hoteliers and other campaign contributor neophytes to face veteran Russian diplomats in key European capitals, it is nothing short of delusional. At the very least, Obama risks stumbling in his pursuit of foreign policy goals in a situation where every mistake counts.

— Jim Bruno at

 

ARGENTINE UPDATE – Apr 9, 2014

9 abril, 2014


1. ARGENTINA: STIFF SENTENCES FOR 10 IN RETRIAL OF HUMAN TRAFFICKING CASE (NYTimes.com Feed)
9 April 2014
A court handed down sentences of 10 to 22 years in prison on Tuesday to 10 defendants accused of kidnapping and forcing into prostitution a young woman whose disappearance raised global awareness about human trafficking. The search for the woman, Marita Veron, continues, but after two trials, her mother, Susana Trimarco, said she was satisfied with the verdict. She said she and others had “achieved a bit of justice for Marita and for all the girls.” The court heard the case after a new trial was ordered. All the defendants had been found not guilty in the first trial. Two brothers, Jose and Gonzalo Gomez, received 22 years each for kidnapping Ms. Veron. The others received lesser sentences. All but one are being jailed pending appeals.
2. ARGENTINE COURT GIVES LONG TERMS FOR SEX SLAVERY (The Washington Post Online)
April 8, 2014
BUENOS AIRES, Argentina — A court in Argentina has handed down tough sentences of 10 to 22 years in prison to 10 defendants accused of kidnapping and forcing into prostitution a young woman whose disappearance raised global awareness about people trafficking.
The search for Marita Veron continues, but after two trials, the woman’s mother Susana Trimarco says she’s satisfied with Tuesday’s verdict. She said she and others have “achieved a bit of justice for Marita and for all the girls.”
The court ruled in provincial Tucuman after a new trial was ordered following not-guilty verdicts for all the defendants.
Brothers Jose and Gonzalo Gomez received 22 years for kidnapping Veron. The others received lesser sentences. All but one are being jailed pending appeals.
3. ARGENTINA ECONOMY: QUICK VIEW – CONSUMPTION INDICATORS SLUMP (Economist Intelligence Unit – ViewsWire)
8 April 2014
Event
The latest consumer demand indicators are indicative of a decline in private consumption. In February supermarket sales grew by 30.5% year on year. Although there is no annual 12-month inflation figure from official sources for this period, estimates from PriceStats, an inflation-monitoring company, which form the basis for our forecasts, show annual inflation at 31.8%, which implies a decrease in sales in real terms.
Analysis
A number of other indicators have also been weak. According to the Confederación Argentina de la Mediana Empresa (CAME, a business chamber), retail sales sank by 7.2% year on year in volume terms in February, the deepest fall since October 2009. The decline was led by two sectors: real estate and household appliances, although all 22 categories registered declines.
The consumer spending slump appears to have deepened in March, when car sales fell by 35% year on year. In recent years consumers had increased their purchases of cars and other durable goods as a hedge against inflation. However, a combination of higher inflation and lower nominal wage rises appears to have exhausted this effect. Wages have lagged behind inflation since the start of the year because of delays to wage negotiations, and because new salary agreements have in most cases been behind current inflation. In this environment consumer confidence has plummeted. The consumer confidence index produced by the well-respected Universidad Torcuato di Tella declined by 19.8% in the first quarter of 2014, to its lowest level since 2002 (the height of the economic and financial crisis).
4. ARGENTINE BLUE-CHIP SWAP PESO AT SMALLEST GAP SINCE 2012 (Bloomberg.com)
By Camila Russo
Apr 8, 2014
The Argentine peso is strengthening in the parallel exchange market as higher interest rates reduce demand for dollars, closing the gap with the official rate to the narrowest since December 2012.
The foreign-exchange rate implied from trading in dollar and peso securities, known as the blue-chip swap, gained 0.6 percent to 9.618 per dollar, reducing the gap with the official rate to 1.62 pesos, from as wide as 4.56 pesos on Feb. 3. The peso in the black market rallied 2.5 percent to 10.34 per dollar, the strongest since January, according to data compiled by Ambito.com.
Argentina’s central bank devalued the official peso 19 percent in January and pledged to keep the currency at 8 per dollar, encouraging soybean exporters to sell their products to add foreign currency to reserves that have tumbled 32 percent in the past year. The monetary authority also boosted benchmark interest rates and drained pesos from the economy as part of efforts by the government to curb the decline in reserves.
“It seems like the central bank’s measures are being effective in bringing down the black-market dollar,” Francisco Diaz, a currency trader at ABC Mercado de Cambios, said in a telephone interview.
The gap between the street peso and the official rate narrowed to 2.32 pesos from 5.19 pesos on Jan. 22. The unofficial currency rate has gained 13 percent since the government eased currency restrictions Jan. 24 by allowing purchases of as much as $2,000 per month.
5. ARGENTINA ENCOURAGES CONSUMERS TO CUT GAS USE TO MAINTAIN SUBSIDIES (Platts Commodity News)
By Charles Newbery
8 April 2014
Buenos Aires (Platts)–8Apr2014/1013 am EDT/1413 GMT   Argentina’s government Tuesday called on businesses and households to reduce natural gas consumption, saying it would allow it to maintain subsidies to limit a planned increase in rates for the public utility.
“The more you save in gas, the subsidies will be maintained,” presidential Chief of Staff Jorge Capitanich said in a televised press conference.
Capitanich spoke a day after the Energy Secretariat announced a 20% reduction in the subsidies on commerce and households.
While the government had said this would lead to an up to 162% increase in gas bills this year, an analysis of the rates published Monday in the Official Bulletin, the government’s newspaper of record, shows increases of up to 943%. The increases will be made gradually in April, June and August.
But if consumers cut consumption by 5% to 20% this year compared with 2013, the hike in the rates is less at around 80%, depending on location and consumption. If consumption is cut by more than 20%, the gas rate won’t change.
“The percentage of the subsidy cut will depend on the rational use of energy,” Capitanich said.
The government began subsidizing electricity and natural gas for consumers, businesses and industry in 2003 to help rebuild the economy after Argentina’s 2001-02 financial crisis. The economy recovered robustly between 2003-2011, but the government struggled to peel back the subsidies as planned in 2008 and in 2011 on public outcry, or fear of it.
Low gas prices — they are averaging $2.50/MMBtu, up from less than $0.50/MMBtu in 2002 — have been a major factor behind a decline in gas production and surge in consumption.
6. UC DAVIS PROFESSOR RECEIVES 2014 WOLF PRIZE (U-Wire)
By Ellie Dierking
8 April 2014
UC Davis Professor Jorge Dubcovsky discovered a gene that can increase the nutritional value of wheat, and in January, was awarded the 2014 Wolf Prize in Agriculture.
The prize, which has been awarded since 1978, is one of six prizes established by the Wolf Foundation and is awarded once a year in Israel. The foundation’s website states that one of its main goals is “to award prizes to outstanding scientists and artists … for achievements in the interest of mankind and friendly relations among peoples.”
Dubcovsky and his team conduct their research using an applied breeding program that produces commercial varieties of wheat, which include things like pasta and bagels, and make up about 20 percent of the wheats grown in California.
“We discovered a gene that increased the amount of protein and iron that you have in the wheat grain,” Dubcovsky said. “This gene controls the remobilization of nutrients.”
Though the Wolf Prizes are usually each given to a single recipient, this year Dubcovsky shares the prize with Leif Andersson from Uppsala University in Sweden.
The foundation, according to its website, believes that Dubcovsky’s achievements are “truly impressive,” providing “groundbreaking contributions” to the field of wheat genetics.
“My program goes from very, very applied to very basic,” Dubcovsky said. “The focus of our research is on the genetics of the traits that contribute to develop better wheat: we study genes that improve quality and the nutritional value of wheat and that make wheat more resistant to biotic and abiotic stresses.”
Dubcovsky was born and raised in Argentina, and graduated from the University of Buenos Aires in 1984. He first came to Davis as a visiting scientist in 1992, but after returning to Argentina for a couple of years and finding it difficult to make a living, he moved to the United States and joined the UC Davis faculty in 1996.
“I enjoy it a lot here,” Dubcovsky said. “There are better opportunities for me. The system has more resources and is less corrupt. Argentina is a very nice place but we couldn’t make a living, and science wasn’t such a priority — that has changed a lot in recent years. That situation has gotten better for scientists, but when I came [to America] it was almost impossible for scientists [in Argentina].”
Dubcovsky currently teaches advanced statistics and an experimental design class at UC Davis. Previously, he taught undergraduate courses in molecular genetics and bioinformatics.
“I’ve had about 60 grad students every year for about 17 years — a lot of you!” Dubcovsky said. “I enjoy [being a professor], but I’m very passionate about my research also, so I like having time for that.”
Prior to receiving the Wolf Prize, Dubcovsky was also elected to the National Academy of Sciences in 2013, where he has meetings with legislators to advise on plant breeding and on the need to train new plant breeders. His NAS responsibilities also include the revision of manuscripts for the Proceeding of the National Academy of Science as well as a general promotion of science and science education.
Tyson Howell, a fourth-year Ph.D. student in the Genetics Graduate Group, has been a student of Dubcovsky since March 2011.
“I think he is an excellent teacher with a passion for his work that really shows,” Howell said. “He has an in-depth knowledge of the subject matter, and endeavors to help students understand the material. It is clear that he takes teaching seriously and has a sincere interest in helping students learn the material for their own benefit, rather than just teaching so the students can pass a test.”
Howell specifically remembers a late meeting with Dubcovsky one evening in which the professor had to rush home after realizing mid-sentence that he was late for dinner.
“I‘m sure he was hoping his wife hadn‘t noticed he had stayed late in the lab yet again,” Howell said. “I remember this because it made me realize that he truly is passionate about his research, but he is also a husband and a father and has to balance many different aspects of his life, and I hope that in the future I can do as good a job of it as he does.”
Another Ph.D. student, fifth-year genetics and plant breeding major Rebecca Turner, has known Dubcovsky for six years now, works in his lab and said that she believes his Wolf Prize is definitely well deserved.
“From an undergraduate perspective, Jorge is an enthusiastic professor, who takes the time to present applicable material in a thorough way,” Turner said. “As a graduate student, he is a serious advisor, who imparts in his students a responsibility to report accurate results and to address relevant research questions.”
According to Turner, Dubcovsky’s work has resulted in the collaboration of public institutions across the country, creating resources for identifying genes and traits in wheat and barley breeding.
“These contributions have a global impact, as wheat is one of the top staple food crops in the world,” Turner said.

 

ARGENTINE UPDATE – Apr 1, 2014

1 abril, 2014
1. ARGENTINA INCHES TOWARD ECONOMIC CRISIS, AGAIN (USA Today.com)
By David Agren
April 1, 2014
BUENOS AIRES — People may pack the pews at St. Benedict the Abbot parish in the upscale Belgrano district of the Argentine capital, but that doesn’t translate into demand for the images and statues of saints that Pedro Atencio sells outside the church.
“Sales are down due to the economy,” he says.
Times have turned tough in Argentina, where vendors such as Atencio blame old economic issues such as inflation and devaluations for sinking sales. Pessimism is rife as prices rise, purchasing power erodes and people prepare for the possibility of another economic crisis — in a country once among the wealthiest in the world, but better known now for recurring crises and calamities.
“This is a country that is constantly on the road to the next crisis,” says Luciana Carcione, economist with Orlando J Ferreres & Asociados in Buenos Aires. “Every 10 years or so, we end up in some sort of crisis, large or small.”
Economists such as Carcione see worrying signs, though she says “this won’t be a disaster” like 2001, when the currency collapsed and Argentina defaulted on debts of approximately $95 billion — leaving it frozen out of international credit markets.
Still, inflation is accelerating and projected to hit 40% in 2014, according to Sergio Berensztein, director of Poliarquía Consultores. Unofficial estimates put the inflation rate at above 25% in 2013, much higher than the official government rate of 10.9% — a figure few believe, Berensztein says.
A study from consultancy Estudio Bein estimates inflation has eroded wages nearly 10% over the past four months. The Argentine peso was devalued nearly 20% in January, further diminishing purchasing power and making imported items more expensive.
“The government was able to successfully stop the exchange crisis with a devaluation and raising of interest rates,” Berensztein says, adding the “fiscal deficit” and government spending are still high.
Outside investors remain skeptical. Moody’s downgraded Argentina’s sovereign rating March 17 to Caa1, seven levels below investment grade status, Bloomberg reported.
Rising incomes, along with inflation, spurred consumer spending during the past decade. Robust sales of soybean crops brought in badly needed foreign reserves, which were used to pay debts. Those reserves have dropped below $30 billion, prompting the devaluation.
“For nearly a decade, (reserves) were nearly $50 billion. … That gave the government an, ‘I don’t need the world’ attitude,” says Fernando Farías, radio host in Buenos Aires. “They have had to do something to bring Argentina back to the world financial markets.”
Inflation started increasing in recent years, prompting Argentines to spend instead of save, or move their money out of the country.
Automobile sales reached record levels in 2013, while Argentines traveled abroad like never before — both symptoms of high inflation, which has outpaced interest rates.
“There’s an incentive to spend that money now, whether in a restaurant or on a trip or on a flat-screen TV, rather than keep it in a bank and see it lose 30% of its value after a year,” Farias says.
The spending even reached the shanties of Buenos Aires, where the poor attempted to preserve their patrimonies by purchasing small cars — which tend to maintain their value in Argentina — or bricks to build additions to their homes.
“We now have traffic jams” in the shanties, says Father Carlos “Charly” Olivero, one of the parish priests Pope Francis sent to work in poor areas — places he made a priority of his ministry in Buenos Aires.
Amid rising inflation and devaluation, Father Olivero reports an increase in the demand for social services, such as parish food and clothing banks.
Under the constant threat of such crises, people take creative precautions. Oswaldo Peñalosa is an engineer by training, but he bought a taxi license 25 years ago and keeps renewing it annually, even if he isn’t driving his cab. “It’s been a life preserver,” he says.
Argentines traditionally have bought greenbacks as a safeguard against instability at home, but the government imposed restrictions in recent years as its reserves began to decline.
Saving in U.S. dollars is illegal in Argentina, and those traveling abroad pay a 35% tax on credit card purchases made outside the county. That doesn’t stop people from purchasing greenbacks on the black market.
“Argentines don’t invest,” says Máximo Merchensky, a former official in the Buenos Aires municipal government and critic of President Cristina Fernández de Kirchner. “They take (their money) out of the country or hide it under the mattress or in a safe, after first converting it into dollars.”
Fernández dismisses any talk of crisis in Argentina but has hit back against critics and business owners she accuses of improperly raising prices. Billboards encourage people to denounce stores and supermarkets not respecting price freezes ordered by the government.
A smartphone app developed by university students allows customers to check stores’ compliance. The president’s policies of cash transfers and subsidies have found favor with the poor — a group more likely to vote for her, according to polls done by Poliarquía Consultores — and groups such as students, who receive stipends to attend school.
“Even with inflation, wages have always kept up,” says Juan Manuel Estévez, a social worker and supporter of the president. “The problem is the distribution of wealth.”
Fernández promoted prosecutions of people publishing unofficial inflation figures, and the International Monetary Fund censured Argentina for its shoddy statistics. She promised no devaluations of the peso.
Since the president’s popularity has fallen and Fernández is unable to run again in 2015, analysts see opportunity for change in the coming years.
“It’s a pragmatism that’s late and incomplete,” Berensztein says. “Due to problems with reputation and communications, the magnitude of the change coming isn’t being appreciated.”
2. ARGENTINA’S FERNÁNDEZ FACES MOTHER OF POLITICAL FIGHTS (Financial Times.com)
By Benedict Mander
March 31, 2014
Cristina Fernandez confided in a recent televised address that as well as being Argentina’s president she liked to think of herself as “the mother” of the nation.
Although the 61-year-old indulged a handful of supporters by posing for pictures afterwards, many Argentines were incensed by the speech, in which Ms Fernández denied there would be a big jump in utility bills even though some are set to rise by as much as five times after hefty subsidy cuts were announced hours earlier.
Despite her maternal instincts, Ms Fernández’s popularity has dived since her 2011 re-election and could drop further as the leftist leader scrambles to avoid impending economic troubles by implementing the sorts of orthodox market reforms her government had long resisted.
The government’s series of U-turns on economic policy – which have also included a devaluation, the revamping of the consumer price index and the settling of long-running investor disputes – have led some to ask whether there has been a change of heart at the top of Argentina’s government.
Last Thursday, the cash-strapped government announced it was cutting subsidies on natural gas and water by a fifth, thus unwinding one of the cornerstones of government policy during what Ms Fernández calls the “victorious decade” since her husband Néstor Kirchner took power after Argentina’s 2001-02 economic crisis.
On the same day, the government revised its growth estimate for 2013 from 4.9 per cent down to 3 per cent, in line with private sector estimates, just in time for a deadline set by the International Monetary Fund for Argentina to improve its long-questioned statistics. In doing so, the administration saved itself a $3.5bn payout to holders of GDP warrants, which would only have been triggered if growth had exceeded 3.2 per cent.
The attempt to pursue more orthodox economic policies has helped Argentina’s bonds to rally strongly.
However, José Octavio Bordón, Argentina’s ambassador in the US during the administration of Mr Kirchner, said there has been “no ideological change” in government. “This is just an objective response to the fact that the government has run out of money,” he said.
Mr Bordón agreed the subsidies had been necessary to stimulate consumption when the Argentine economy collapsed after the 2002 default, but said these were kept in place for too long as it bounced back.
High commodity prices drove average annual growth of 7.2 per cent from 2003 to 2011. Yet the subsidies are now being removed just as another recession looms.
Carlos Germano, a political analyst, said: “There is no clear policy strategy. They [the government] are just going around putting out fires, fixing problems as they arise without thinking too much about the long-term consequences”. He expects further subsidy cuts.
“The president’s popularity is going to take a real beating. This is seriously weakening her leadership,” he added.
Foreign policy, which is driven by a desperate need to attract investment since Argentina has been locked out of the international capital markets since the 2001 default, has also been haphazard.
On a trip to Europe last month, Ms Fernández sought support from François Hollande, French president, in negotiations with the Paris Club of creditor nations that Argentina owes some $10bn.
But she also raised hackles among western leaders when she received a telephone call from Vladimir Putin, Russia’s president, to thank her for her position on the crisis in Crimea. Ms Fernández had criticised the “double standards” of UK and US leaders, who supported last year’s referendum in the Falklands Islands, in which 99.8 per cent of inhabitants voted to remain a British territory, while rejecting the recent referendum in Crimea.
Nevertheless, Argentina’s fitful efforts to mend poor relations with the international community bore fruit recently, when France, Brazil and Mexico declared their support for Argentina to the US Supreme Court in a dispute with so-called “holdout” creditors, who rejected restructured debt after the 2001 default and are pushing to be paid in full.
Ms Fernández’s success in tackling the problems assailing her government, which include having one of the highest inflation rates in the world to alarmingly low levels of foreign exchange reserves, will determine her political future.
Mr Bordón, himself a former presidential candidate, said Ms Fernández’s goal was to leave power with the best image possible when her term concludes at the end of 2015. The president’s approval rating is languishing at about 30 per cent.
He suggested she may be aiming to mirror the performance of Michelle Bachelet, president of Chile, who recently returned to power after a four-year hiatus.
“Those who think that the president is thinking of leaving [politics] are mistaken,” said Mr Bordón.
3. CREDIT MARKETS OPEN TO ARGENTINA FOR FIRST TIME IN YEARS: MINISTRY (Reuters.com)
March 30, 2014
BUENOS AIRES (Reuters) – Argentina has been approached by financial institutions offering it loans at favorable rates, the economy ministry said on Sunday, marking a tentative reopening of international credit markets for the first time in over a decade.
The economy ministry issued a statement on Sunday, saying it had received offers of credit from abroad. It did not name the institutions.
“In recent weeks … various financial institutions have presented proposals of access to external financing with repayment timetables and interest rates similar to those offered to other countries in the region,” it said.
It would be the first time Argentina has received loans from international creditors since a massive default in 2002.
The offers followed Argentina’s $5 billion settlement with Spain’s Repsol over its expropriation of YPF and progress on talks to repay over the $9.5 billion Caracas owes the Paris Club creditor nations, said the ministry.
The statement followed an earlier report in local newspaper Pagina/12 that the government was closing in on a deal to receive around $1 billion in loans from investment bank Goldman Sachs and had been approached by other lenders.
The paper, which has close ties with the government of President Cristina Fernandez, said the two-year loan would be announced in the next few days and carry an annual interest rate of 6.5 percent.
Goldman Sachs declined to comment.
The loans would come as the government seeks cash to avoid a further devaluation of the peso and increase its depleted foreign exchange reserves.
Dollars have been scarce in Argentina due to capital flight, weak exports, and low competitiveness because of high inflation.
The government hopes securing the Goldman Sachs loan would demonstrate that its strategy of thawing relations with international creditors was starting to take effect, said the paper.
Argentina has already offered to repay the debt it owes the Paris Club, which stems from the 2002 default.
The club had accepted Argentina’s initial proposal to pay back the funds without recourse to the International Monetary Fund and to request credit lines from the countries it owed money to, Pagina/12 said in a separate report on Sunday.
Talks were continuing over the repayment terms, it added.
The economy ministry also on Sunday restated its intention not to issue debt in foreign currency.
(Reporting by Maximiliano Rizzi, additional reporting by Lauren LaCapra; Writing by Rosalba O’Brien; Editing by Sophie Hares and Sandra Maler)
4. ARGENTINA TO START UTILITY SUBSIDIES CUTS AS SOCIAL TENSION RISES (Market News International)
By Charles Newbery
31 March 2014
 Argentina’s government this week plans to start reducing natural gas and water subsidies, a move that could fuel already high social tension as teachers extend a three-week strike.
Economy Minister Axel Kicillof and Planning Minister Julio De Vido said last week that the 20% subsidies cut could save the state up to 13 billion pesos ($1.6 billion) a year.
The cuts will be made in April, June and August, and will lead to a rise in prices for commercial and residential service of up to 162% for gas and 306% for water, according to the Planning Ministry.
Industry will not pay higher prices as long as they sustain prices and adequate supplies of their products, a move designed to improve the competitiveness of manufacturers and sustain employment. The government wants to keep the economy growing after 3% expansion in 2013, even as economists warn of a 2% contraction this year.
Argentina first introduced the subsidies in 2003 to help emerge from the 2001-2002 economic crisis, and the authorities have struggled to reel them in since then, with two previous attempts failing.
The subsidies have grown so large that for every five pesos the state spends one goes to keeping down utility and public transportation rates.
This has kept down earnings for private utility companies, with their finances taking a further hit from inflation. Consumer prices – and wages – have gone up by an average of 25% a year since 2010. In consequence, infrastructure has weakened and shortages have become periodic, with huge blackouts – for up to three weeks in some areas – hitting the country in December and January.
The government said the savings from the subsidies cut will go to improving the finances and infrastructure of utility companies while the rest will go to financing social spending such as on child welfare.
The subsidy cuts will not apply to families on welfare, people with disabilities, and households that live in remoter – and costlier – parts of the country like Patagonia.
Despite the cuts, Kicillof said the government will not abandon the subsidy program, saying it is a policy that spurs consumer spending and economic growth by increasing disposable income.
By not raising utility rates on industry, the administration hopes to limit the impact on consumer prices. Many economists expect inflation to surpass 40% this year after rising 35% year-over-year in February.
While the administration has started to make adjustments to a free-spending economic model by devaluing the peso by 20% against the dollar, raising interest rates, starting to come clean on long-underreported inflation data and settling debts and lawsuits with companies, a major hurdle remains for the economy: wage negotiations.
The government wants to keep wage hikes below 25%, but unions are demanding between 30% and 40% raises to protect their purchasing power.
Public school teachers in Buenos Aires province, the country’s most populated, will continue striking for higher pay for a fourth week this week. Teachers will hold a march in downtown Buenos Aires Monday evening to protest low wages.
The government will report public service consumption and construction activity Monday, while reports on March tax collections and auto production, exports and sales are due out later in the week.
Banks, financial markets and government offices will be closed Wednesday for a public holiday to remember veterans from the 1982 Malvinas/Falklands war.
5. ARGENTINA CRUDE EXPORTS ROSE IN FEBRUARY YEAR ON YEAR: GOVERNMENT (Platts Commodity News)
By Charles Newbery
31 March 2014
Buenos Aires (Platts)–31Mar2014/254 pm EDT/1854 GMT  Argentina’s crude exports totaled 61,161 b/d in February, compared with zero in the year-earlier period, the country’s Energy Secretariat said Monday.
The exports were nearly double the 33,689 b/d exported this past January, the department said in a monthly data report.
All of the exports in February and January were of Escalante, a crude that has a gravity of 24 API and 0.25% sulfur.
Pan American Energy, which is controlled by BP, is the country’s biggest exporter, generally making shipments of 1 million barrels to buyers in China and the US. It made 60% of the export sales in February while state-run YPF handled the rest.
Argentina launched a plan this year to step up crude exports with the aim of reducing imports of costlier refined products. Refiners have been asked to import more supplies of light crude, which is expected to leave more supplies of heavier crudes like Escalante available for export.
Argentina imported the equivalent of 7,130 b/d of crude in February, compared with zero in the year-earlier period and 9,213 b/d this past January. Refinor, which operates a 15,850 b/d refinery in the north of the country, made all of the imports.
Argentina had not imported crude for years, until 2012, when it had to turn to overseas suppliers to make up for dwindling domestic production, in particular during times of higher demand in the May-September cold season and the January-February crop harvest period and summer holidays. Domestic crude production fell 36% to 540,000 b/d in 2013, from a record 847,000 b/d in 1998, on low investment, maturing reserves and few finds, according to analysts.
6. COLORADO DAD ONE STEP CLOSER IN FIGHT AGAINST EX-WIFE FOR DAUGHTERS IN ARGENTINA (CNN Wire)
By Ana Cabrera and Elizabeth Stuart
31 March 2014
SNOWMASS, Colorado (CNN) — It’s been seven months since Dennis Burns has had any contact with his two young daughters. No visits, no Skype, no phone calls, no communication at all.
Just silence.
But all that could change in the next few weeks.
His daughters are victims of an international abduction.
Burns’ ex-wife, Ana Alianelli, spirited away the children, 7-year-old Victoria and 5-year-old Sophia, from their home in Colorado and fled to her native Argentina more than 3½ years ago, violating a court order.
“You know I think about them a lot,” Burns told CNN in an exclusive interview. “I dream about them a lot. I can feel their little hugs around my body. I just want to hug them back, and it’s super painful.”
Burns has devoted his life savings and all his time to fighting what’s become a messy international legal battle.
His odyssey now appears to be reaching a conclusion: Argentina’s Supreme Court has denied the last of appeals by his ex-wife this year, which means Burns has won his case. The final step will be an order of return from the U.S. State Department and a date to transfer custody of the girls to him.
It all began in September 2010, when Burns and Alianelli were divorcing and found themselves at an impasse: Alianelli wanted to relocate to Buenos Aires, and Burns wanted to stay in Colorado.
After a 13-month custody battle, a Colorado judge ruled in favor of Burns, declaring him the primary residential parent.
“I felt a sense of relief that was just beautiful,” he told CNN last November, when “New Day” first presented his story. “I was like, ‘I’m going to be able to spend time with my daughters, finally, and live with them and be able to teach them things, and show them things.”
Just three weeks later, Alianelli flew the girls out of the United States on their Argentine passports. They’ve been living with her in Buenos Aires ever since.
Messy legal battle
Burns filed an application through the Hague convention child abduction treaty to have Victoria and Sophia returned to him. The Hague treaty is an agreement among countries designed to prevent or resolve cases like Burns’. The U.S. State Department describes it as “a multilateral treaty that provides protection for children from the harmful effects of abduction and wrongful retention across international borders.” In theory, children should be returned within six to eight weeks after a Hague application is filed and a court gets the case. Argentina became a signatory country in 1991.
Despite the treaty, Burns’ case has taken years to resolve. The Argentine court system allows for multiple appeals, which is exactly what Alianelli has done, dragging the case on for years. Two appellate courts ruled in Burns’ favor. The last ruling was on New Year’s Eve.
“The Supreme Court of Buenos Aires ruled for the return of Sophia and Victoria, which is fantastic and was really, really good news to bring in the New Year for me,” he said.
Six weeks later, on Valentine’s Day, Alianelli filed what would be her final appeal to the Supreme Court of Argentina. It has meant more waiting for Burns, but the Supreme Court of Argentina has ruled in his favor, and that court’s decision is final.
Alianelli and her lawyers have declined several requests for an interview to get her side of the story. Instead, they provided this statement: “No comment.”
Meanwhile, Burns was supposed to be allowed at least three Skype communications with his daughters each week — under court order — but he has been completely cut off by Alianelli.
“We’re getting closer to justice being restored, and this is her way of getting back at me, I guess,” he said. “But it’s punishing them more than me. It hurts me, but they’re children who need their father and their mother.”
Taking the fight to Washington
Burns has joined forces with the hundreds of other American parents enduring the same heart-wrenching situation, taking their battle to U.S. lawmakers in Washington. Notably, he’s working alongside David Goldman, who has been in Burns’ shoes.
Goldman fought for more than five years to bring his son, Sean, home to the United States from Brazil. During his ordeal, U.S. Rep. Chris Smith, R-New Jersey, played an integral role in helping Goldman. Since then, Smith and Goldman have worked together to develop new legislation in the hopes of resolving parental abduction cases more quickly.
“Where’s the enforcement? Where’s the ruling? Every day is a day lost, every day is a day you can’t get back, and we have to do what we can,” said Goldman.
House Resolution 3212 is a bill designed to ensure that countries comply with the Hague abduction treaty. The bill outlines more than a dozen steps that the U.S. State Department could take, including the threat of sanctions, when a Hague country does not hold up its end of the deal.
The legislation has the potential to affect thousands of U.S. parents. The State Department reports more than 1,000 children were internationally abducted by a parent in 2013 alone.
The bill passed the U.S. House in December.
“It was beyond expectations,” Smith said. “It was unanimous: 398 (yes votes). Totally bipartisan.”
The bill now sits in the Senate Foreign Relations Committee, which held a first hearing on the proposed legislation on February 27.
“If HR 3212 was already a law, my daughters would most likely have been not only returned by now but probably would have been returned in the first year of this unending nightmare,” Burns said.
The final legal decision
Now that Argentina’s Supreme Court has ruled that Victoria and Sophia should return to the United States, Burns is in what he hopes are the final weeks of his nightmarish journey. Even after his daughters are back in his care, he vows to continue to help other parents fighting the same battle.
Burns hasn’t had any communication with his girls since last July, and he realizes that he will never get back the precious moments he’s missed out on for the past 3½ years. He also says he’s concerned about how his ex-wife may have characterized him in the years since his girls were taken.
However, Burns remains determined and steadfastly hopeful that he’ll be able to say these words to his daughters, in person, someday soon:
“Papa loves you, Victoria and Sophia. I love you very much.”

ARGENTINE UPDATE – Mar 11 & 12, 2014

12 marzo, 2014

 

MONDAY CLIPS..  

1. LEFT HAND AMONG BONES (NYTimes.com Feed)
By Roger Cohen
11 March 2014
BUENOS AIRES — In the end it was his father’s left hand, found a couple of years ago in a pile of charred bones outside La Plata, that enabled Gonzalo Reggiardo Tolosa to know for a fact the man he never knew was dead. This was physical knowledge, different from the almost-certain supposition with which he had lived ever since he discovered as a boy in the late 1980s that the couple who raised him and his twin brother Matías were not his parents.
Even his father’s remains did not constitute closure for this child of the “disappeared,” born in 1977 under the rule of Argentina’s military junta, seized at birth from parents who vanished into the vortex of the “Dirty War,” raised by a police officer named Samuel Miara and his wife Beatriz who initially insisted he was their son, thrust into foster care after Miara was jailed, then handed over to a biological uncle, told to forget his former life, and finally left to sift through the scattered fragments of his existence.
Still the trials go on.
“I am incredibly mad at the cruelty of not allowing a person to mourn his parents,” Reggiardo Tolosa tells me. “They did all they could to destroy the evidence. The other day I left the witness stand after giving testimony and broke down. I was sobbing. I am still trying to mourn my parents.”
We are seated in a Starbucks in the Argentine capital. It is a holiday, as usual. The streets are quiet — apart from the money-changers’ refrain: “Cambio, cambio, cambio.” Yet another little currency crisis has hit Argentina. Nobody wants pesos.
Reggiardo Tolosa speaks slowly of another time, when our sons of bitches, to paraphrase Franklin Delano Roosevelt’s apocryphal comment, did their foul business in the name of defeating communism in the Americas, and many thousands disappeared. His manner is gentle, his pain evident, still. This is what our sons of bitches wrought, a legacy without end.
His breakdown occurred last month. He and his brother were called to testify in a trial involving former army officers accused of involvement in killings under the junta at a clandestine facility called La Cacha, adjacent to Los Olmos prison in La Plata, where the twins’ parents were held before being “disappeared.”
One of the indicted, Ricardo Fernández, a former intelligence officer, is Gonzalo Reggiardo Tolosa’s godfather. His godfather! He was chosen by Miara, who always insisted, however, that Fernández had no role in abducting the twins. Now Reggiardo Tolosa is convinced Fernández was the conduit from the hell of La Cacha to the Miaras.
The twins arrived at the Miaras’ home on May 16, 1977. They have no birth certificate. It is estimated they were born around April 27. “What I must find out now is what exactly happened in those three weeks,” Reggiardo Tollosa says. Almost 37 years after he and his brother were taken, he is closing in on the truth.
I have known this man since he was a boy. His hair, now brown, was blond then. He and his brother were playing soccer in a yard in the Paraguayan capital of Asunción. I had followed a lead that the Miaras had fled to Paraguay with two boys born to a disappeared Argentine couple. Miara, when I confronted him in 1987, denied it. But the piece, published in The Wall Street Journal, helped secure his eventual extradition to Argentina.
Some stories will not leave you. They are your actual responsibility.
Reggiardo Tolosa is with his girlfriend, Jimena Vicario. She was a baby when, on Feb. 5, 1977, she was taken from her mother (who disappeared) during police questioning. She was dumped in a Buenos Aires hospital, raised by a woman who took pity. Her father, Juan Carlos Vicario, a Spanish citizen who fled Franco, was also murdered. The couple was about to leave for Spain when they vanished.
Jimena Vicario never gave blood for DNA testing, never wanted to know what exactly happened to her parents, never saw the point. Reggiardo Tolosa thinks she hates the tango and wants to get out of Argentina because that is what her parents were about to do when they were killed. For himself he cannot leave his football club (San Lorenzo), his city’s particular melancholy.
They first glimpsed each other as children in court. They re-met a year ago through Facebook. They laugh that there is so much they don’t have to explain to each other; that they don’t need to deal with in-laws; that money received in compensation for their loss disappeared in another currency crisis; and that they no longer have partners who, when angry, say: “Spare me your story yet again.”
They can laugh, just. The next trial, Reggiardo Tolosa says, will focus specifically on Fernández and the twins’ abduction. Perhaps then, he muses, “I will finish realizing I am an orphan.”
2. ARGENTINA: TED TURNER REQUIRES EMERGENCY MEDICAL TREATMENT (The New York Times)
By Jonathan Gilbert
8 March 2014
Ted Turner, the American media magnate, was expected to undergo emergency medical treatment in Buenos Aires, Télam, Argentina’s national news agency, reported Friday. Mr. Turner, 75, who founded CNN and is worth $2.2 billion, according to Forbes, had been at a ranch he owns in southern Argentina, local news media reported. He was taken to a private clinic in the city of Bariloche early Friday morning after he complained of a sharp pain in his abdomen, an official at the clinic told Télam. After a brief stay, Mr. Turner was moved to Buenos Aires.
3. A LULL IN THE FIGHTING (The Economist)
By H.C
March  7th 2014
IN JANUARY Argentina looked like it was in real trouble. Its official exchange rate was severely overvalued; its international reserves were dwindling. The government devalued the peso by 20% that month in an attempt to bring the official exchange rate closer to the unofficial “blue” rate. Things have stabilised as a result: Argentina’s official exchange rate has remained at around 8 pesos to the dollar since late January. But strains on the economy remain.
By hiking interest rates by six percentage points, to around 29%, Argentina’s central bank (BCRA) has made it more attractive to keep money in the country. More than 30 billion pesos ($3.75 billion) have been taken out of circulation over the past month and a half.
Relaxing some of the draconian currency controls on individuals that were introduced by President Cristina Fernández de Kirchner in late 2011 has also helped to steady things. By making it easier to get hold of dollars, the informal exchange rate has strengthened to around 11 pesos. Whereas in the past the difference between the official and unofficial rates reached 70%, it currently stands at 38%.
The country’s reserves, which have dropped below $28 billion, have also stabilised. That is partly an effect of the devaluation. The Central Bank also decreed that local banks liquidate any foreign-currency positions above 30% of their total assets. After plummeting by nearly $2.5 billion in January, this move helped slow the fall in reserves to $375m in February. The pressure will probably ease further in the coming weeks. This year’s harvest was copious and soy prices in Chicago are favourable, meaning that the BCRA can expect sizeable injections of dollars. Some think the recent compensation agreement between Argentina and Repsol over the 2012 nationalisation of YPF, the state oil firm, could trigger a flow of investment into the country’s petroleum industry.
Keeping the exchange rate steady will be harder. A new and more credible official consumer-price index put inflation at 3.7% in January. Private sources are predicting numbers close to 5% for February. Stalled wage negotiations with the teachers’ unions, some of which are demanding raises upwards of 40%, do not bode well for the government’s ability to keep inflationary pressures under control. Rapidly rising prices will soon erode the competitiveness boost afforded by January’s devaluation; by making the official rate seem more overvalued, it will also reinforce the allure of dollars.
According to Miguel Kiguel of EconViews, a consultancy, the BCRA could respond to this problem in a couple of ways. The first is to sustain the exchange rate at 8 pesos to the dollar for several months and then devalue again by around 20%, as it did in January. The other solution for the BCRA is to resume its previous strategy of “managed flotation,” or gradual devaluation, at a rate of about 2% a month.
Whatever happens, the authorities will be keen not to dampen economic activity too much. Interest rates have already risen; imports have already become more expensive thanks to the new exchange rate. According to Luis Secco of Perspectiv@s, a consultancy, the Central Bank has also cracked down on the sale of dollars to importers. Those looking to import manufactured goods and primary materials to Argentina must find the dollars needed to do so from their own coffers. The consensus is for a mild recession this year. Mr Secco likens the current situation to a GPS system that has been led astray from its originally planned path and must now recalculate. What the new route will be is not yet clear.
4. SUPREME COURT OBSERVATIONS: BG GROUP PLC V. REPUBLIC OF ARGENTINA (Forbes)
By Rich Samp
March 7, 2014
The Supreme Court on Wednesday issued a divided opinion in a case that raised an important issue of arbitration law:  should an arbitrator or a judge decide whether an international treaty requires a private party to bring a commercial dispute before a judge prior to attempting arbitration?  In BG Group PLC v. Republic of Argentina, the Court ruled 7-2 against Argentina, concluding that arbitrators acted within their power when they concluded that a British firm was not required to file suit in Argentina’s courts before seeking arbitration.  Chief Justice Roberts, joined by Justice Kennedy, dissented; they argued that in signing the bilateral UK-Argentina investment treaty, Argentina agreed to arbitration only on condition that investors bring their disputes to an Argentine court first.  But there was one point on which the justices agreed unanimously:  Argentina has a sorry history of living up to its contractual commitments to investors.  That point of agreement does not bode well for Argentina, which in two pending Supreme Court cases is asking the Court to permit it to invoke sovereign immunity as the basis for resisting repayment of sovereign debt.
The case involved claims by a British firm, BG Group plc, that Argentina breached a natural gas distribution contract.  Washington, D.C.-based arbitrators awarded BG Group $185 million in damages, and Argentina turned to American courts to overturn the award.  It cited the terms of the UK-Argentina treaty as the basis for its claim that the arbitrators lacked jurisdiction to hear the case.  The treaty provides that an investor asserting a claim under the treaty may not initiate arbitration until 18 months after filing a claim against Argentina in an Argentine court.
The arbitrators held that BG Group should be excused from complying with the 18-month litigation requirement.  They noted that Argentina, after taking steps that essentially expropriated BG Group’s property, adopted a series of laws designed to block any BG Group lawsuit.  They held that these laws, “while not making litigation in Argentina’s courts literally impossible, nonetheless hindered recourse to the domestic judiciary to the point where the Treaty implicitly excused compliance with the local litigation requirement.”
The Supreme Court summarily rejected Argentina’s argument that the arbitrators had exceeded their power in making that determination.  It recited at length each of the measures Argentina had taken to restrict access to its courts.  It then stated that while it did not necessarily agree with the arbitrators that those measures would make it “absurd and unreasonable” to mandate compliance with the 18-month litigation requirement, their interpretation of the treaty was nonetheless plausible in light of Argentina’s actions.
In his dissenting opinion, Chief Justice Roberts agreed with Argentina and the United States (which filed a brief supporting Argentina) that the UK-Argentina treaty required an aggrieved party to turn first to the courts of Argentina, and that doing so was a condition precedent to Argentina’s agreement to submit disputes to arbitration.  Roberts nonetheless went out of his way to make clear that he was not endorsing Argentina’s conduct in this affair.  He stated, “None of this should be interpreted as defending Argentina’s history when it comes to international investment.  That history may prompt doubt that requiring an investor to resort to that country’s courts in the first instance will be of any use.”
The justices were thus unanimous in their apparent disapproval of Argentina’s checkered past in international financial markets.  That disapproval is particularly problematic for Argentina’s ongoing efforts to persuade the Court to review a Second Circuit judgment that requires Argentina to abide by contractual commitments it made to holders of Argentina bonds.  The appeals court judgment was based to a considerable extent on Argentina’s adoption of “Lock Laws” that absolutely barred certain bondholders access to Argentine courts for the purpose of collecting on defaulted bonds.  The Court’s BG Group decision suggests that the justices may not look kindly on Argentina’s claims in cases where Argentina has manipulated access to its own courts.  Moreover, the decision indicates that support for Argentina from the U.S. Solicitor-General will not by itself be enough for Argentina to carry the day.
5. YPF PROFIT BEATS ESTIMATES ON HIGHER FUEL PRICES AND PRODUCTION (Bloomberg News)
By Pablo Gonzalez
March  9, 2014
YPF SA (YPF), Argentina’s largest oil producer, beat analysts’ estimates as fourth-quarter profit climbed 88 percent on increased revenue from sales and output.
Net income rose to 1.9 billion pesos ($241 million), or 4.89 pesos a share, from 1.02 billion pesos, or 2.59 pesos, a year earlier, Buenos Aires-based YPF said March 7 in a statement after the close of trading in New York. Per-share profit excluding some items beat the 4.75-peso average of three analysts’ estimates compiled by Bloomberg.
Argentine President Cristina Fernandez de Kirchner’s government on Feb. 25 agreed to pay $5 billion in bonds to Madrid-based Repsol SA to compensate for the 51 percent stake in YPF it expropriated in April 2012. Argentina seized the oil producer after its output declined at an average 6 percent rate for almost a decade. Oil and gas production climbed by 7.5 percent in the quarter compared with the same period a year ago.
“The company continued to halt declining output seen in previous years,” YPF said in the statement.
YPF boosted crude production by 6.3 percent in the quarter from a year ago, while natural gas output rose 10.2 percent, the company said.
YPF is pledging to invest $37 billion through 2018 and is seeking partners to develop Vaca Muerta, an area in southwestern Argentina the size of Belgium that contains an estimated 27 billion barrels of shale oil. Vaca Muerta is the world’s fourth-largest deposit of shale oil and second-largest natural gas deposit.
Repsol Compensation
Ending the dispute with Repsol should improve Argentina’s energy investment, YPF Chief Executive Officer Miguel Galuccio told reporters Feb. 25 in Buenos Aires. The agreement, less than the half of the $10.5 billion in compensation Repsol initially sought, marks the end of two years of wrangling over the unit.
“There are many companies that are willing to come to Argentina and there are others that are more wary, but this agreement shows a much more positive horizon,” Galuccio said.
YPF, after securing shale partnerships with Chevron Corp. and Dow Chemical Co., is seeking more international partners. The Argentine producer on Feb. 18 signed a memorandum of understanding with Petroliam Nasional Bhd., the state-controlled company from Malaysia, to jointly develop an area in Vaca Muerta.
YPF, Argentina’s largest shale oil producer, also said on March 5 it signed two contracts for a total of about $1.2 billion to lease 15 drilling rigs to develop Vaca Muerta. YPF had 19 rigs operating in Vaca Muerta’s Loma Campana area, which it is jointly developing with Chevron.
YPF’s cash on hand at the end of quarter was 10.7 billion pesos, while debt increased by 5.8 billion pesos in the quarter to close at 21.2 billion pesos, the company said in the earnings report. The average cost of peso debt was 21.5 percent and 6.05 percent for dollar debt, it said.
(YPF is scheduled to have an earnings conference call today at 8:30 a.m. New York time. To access the webcast:http://www.ypf.com/InversoresAccionistas/Paginas/Home.aspx)
6. TED TURNER CUTS PATAGONIA STAY SHORT FOR SURGERY IN BUENOS AIRES (Bloomberg News)
By Charlie Devereux
March 9, 2014
Cable News Network founder Ted Turner was rushed to a hospital in Buenos Aires today from his holiday ranch in southern Argentina for appendicitis surgery.
Turner, 75, was admitted to a hospital in Buenos Aires, CNN said in a message on Twitter. Argentine television network TN broadcast images of Turner walking from a clinic to a car in the mountain resort town of San Carlos de Bariloche, 835 miles southwest of the capital, before boarding a private plane. Turner Enterprises chief communications officer Phillip Evans confirmed his hospitalization.
“While traveling in South America, Ted Turner was admitted to a local hospital for observation,” Evans said in an e-mailed statement. “Given it is our policy not to comment on his personal health, no further details will be provided.”
Turner, who owns three ranches in Argentina’s Patagonia region spread over more than 125,000 acres, turned CNN into one of the U.S.’s biggest cable-television systems before selling it to Time Warner Inc. in 1996. He also founded the Turner Foundation which seeks to protect and restore the natural world, according to the organization’s website.
Turner is being treated at the Instituto Argentino del Diagnostico y Tratamiento in Buenos Aires, online news service Infobae reported, without specifying where it obtained the information.
7. E-COMMERCE IN ARGENTINA MAY BE UNAFFECTED BY EXPECTED DECREASE IN CONSUMPTION (Business News Americas)
7 March 2014
E-commerce in Argentina will continue to experience robust growth rates this year despite the expected decrease in consumption, local paper La Nación reported e-commerce chamber CACE president Patricia Jebsen as saying.
“The decrease in consumption will not affect e-commerce in the country. We estimate that this year, e-commerce will experience a growth of 45% compared to 2013,” Jebsen was quoted as saying. “In the first two months of the year, e-commerce expanded ahead of our expectations,” she added.
However, the executive said that the sector still needs to continue boosting the offer of e-commerce channels to record even higher growth rates.
According to local economists, the country is expected to have an inflation rate of 30-35% this year. The central bank has implemented certain monetary policies in a move to control the depreciation of the local economy against the US dollar, which may lead to a recession scenario during 2014.
E-commerce revenues grew 48.5% last year versus the previous year, totaling 24.8bn pesos (US$3.17bn). The highest growth rate in e-commerce revenues over the last five years was in 2011, when the sector’s revenues climbed 49.5% compared to the previous year.
Around 38.8% of internet users in Argentina made online purchases during 2013, while some 73.4% research products online before purchasing offline, CACE said.
Argentina currently represents approximately 8.5% of total e-commerce revenues in Latin America and the Caribbean (CALA) region, according to the chamber.
8. ARGENTINA’S YPF BOOSTS FOURTH-QUARTER PROFIT BY 88% (The Wall Street Journal Online)
By Taos Turner
7 March 2014
Oil and Gas Production Also Rose From the Previous Year.
BUENOS AIRES—Argentina’s leading energy company, YPF SA, said Friday that its profit surged in the fourth-quarter while oil and gas production also rose from the previous year.
The state-run company posted a quarterly profit of 1.9 billion Argentine pesos ($241 million), up about 88% from the same period a year earlier.
YPF’s chief executive, Miguel Galuccio, has focused intensely on raising oil and gas production since he took over the company in mid-2012.
The company said crude oil production was up 6.3% in the fourth quarter while natural gas production was up 10.2%.
YPF produces about 35% of Argentina’s oil and gas and accounts for more than half of the fuel sold in Argentina.
Argentina’s government expropriated a 51% stake in YPF from Repsol SA in 2012 after Argentine President Cristina Kirchner claimed that Repsol had not done enough to boost production.
Last month, Repsol’s board said it agreed to end the Spanish oil major’s conflict with Argentina over the expropriation by accepting a compensation deal valued at $5 billion. YPF officials are hopeful the deal will clear the path for the Argentine company to attract fresh investment in the country’s vast and largely untapped unconventional oil and gas fields.
Last year, Chevron Corp. agreed to fund the bulk of a $1.5 billion joint venture with YPF to develop the country’s vast shale oil and gas deposits. Argentina ranks second in the world, behind China, in potentially recoverable shale-gas reserves, with 802 trillion cubic feet, according to a study last month by the U.S. Energy Information Administration.
Argentina also ranks fourth in shale oil with an estimated 27 billion barrels.
YPF is currently in talks with Petroliam Nasional Bhd, or Petronas, Malaysia’s state oil and gas company, to partner in a deal that could be similar in structure to the accord signed with Chevron.
9. ARGENTINA YPF INCREASED OIL PRODUCTION 2.2% IN 2013 ON YEAR (Platts Commodity News)
By Charles Newbery
7 March 2014
Buenos Aires (Platts)–7Mar2014/540 pm EST/2240 GMT  Argentina’s state-run oil company YPF increased oil production last year to 232,300 b/d, 2.2% above 2012, helping to reverse a decade-long decline as it boosted investment in upstream projects.
The company in a Friday statement said 2013 natural gas production rose 1.5% year on year 33.9 million cu m/d, while total hydrocarbon output was up 1.7% to 493,400 barrels of oil equivalent per day.
The recovery came after a decade-long decline in production at about 6% a year.
YPF began increasing investment after the state took it under control in May 2012 when it expropriated Spanish oil company Repsol’s 51% stake.
YPF said fourth-quarter oil production rose 6.3% on the year to 239,300 b/d, while gas production increased 10.2% year on year to 35.5 million cu m/d. Total hydrocarbon output rose 7.5% from Q4 2012.
The company said its production performance was even better at the fields it wholly operates. At those fields, crude production rose 3.4% in 2013 on the year while gas went up 2.2% over the same period.
YPF plans to spend $37.2 billion between 2012 and 2017 to boost oil and gas production by a targeted 32%, with a focus on squeezing more supplies out of maturing fields and developing the country’s large shale potential.
The company said it drilled more than 100 wells targeting unconventional formations in 2013, an effort that took unconventional output — mostly shale oil — to an average of 15,100 boe/d in the fourth quarter and to 18,900 boe/d in December.
As part of the unconventional push, YPF is working with Chevron to develop parts of the Loma Campana basin, where it has drilled more than 30 wells and will share output with the US company. It also has entered a partnership with Dow Chemical.
Argentina holds an estimated 27 billion barrels of shale oil and 802 Tcf of shale gas, far more than its 2.5 billion barrels of proved conventional oil reserves and 12 Tcf of proved conventional gas reserves, according to the US Energy Information Administration.
YPF said its proved hydrocarbon reserves rose 10.6% in 2013 to 1.083 billion boe from 979 million boe in 2012, while its reserve replacement ratio was 158%, the highest since 2000.
The improvement in reserves and production comes as the company increased spending 102% to 24.5 billion pesos ($3.1 billion) in 2013 compared with 2012.
In its downstream business, YPF said its average utilization rate of its three refineries was 87% in 2013, down slightly from 2012.
“This decrease was primarily the result of the unprecedented storm that affected the La Plata refinery during second quarter 2013, which crippled refinery processing levels for that period,” YPF said.
It added that the average utilization rate in the fourth quarter was 90%, a 2% decrease compared with the year-earlier period.
YPF said Q4 revenue rose 54% to 12.7 billion pesos from the year-earlier level, largely thanks to increased oil and gas sales and prices.
Domestic crude prices rose 2% to $71.4/b in 2013, while gas prices rose 78% to $3.94/MMBtu.
=====================================================================

TUESDAY CLIPS
1. GUEST POST: ARGENTINA’S DAY IN COURT (Financial Times)
By Samuel George of the Bertelsmann Foundation
March 10, 2014
On February 18 the Republic of Argentina submitted a petition to the US Supreme Court requesting a judicial review of a 2012 decision from the New York Second Circuit Court. That ruling found illegal Argentine payments on restructured sovereign debt if the country did not also service investors who had not accepted the haircut on the non-performing bonds.
If the Second Circuit Court ruling stands, it will set a precedent that holdouts could eventually be paid in full. Bondholders may become increasingly reluctant to accept haircuts on sovereign securities, thus complicating the ability of a distressed country to restructure its debt.
For this reason, the US and France issued amici curiae to the circuit court in favour of Argentina, and they may issue similar supportive briefs to the Supreme Court in the coming weeks.
The international financial community may not be inclined to cry for Argentina. The truth is a series of unorthodox policy decisions has led to mounting macroeconomic pressure in the country. However, this particular legal case has implications that extend well beyond Buenos Aires. It is especially crucial to modern-day peripheral Europe.
The Argentine case
In 2001, Argentina executed the largest sovereign default in history, walking away from more than $80bn in international debt. Between 2005 and 2010, the country offered bondholders swaps that initially paid around 30 cents on the dollar. (These coupons were packaged with GDP warrants that ensured that if Argentina grew, so too would the payout on its restructured debt. As the Argentine economy has expanded over much of the last decade, these coupons have increased in value—perhaps reaching as much as 50 cents on the dollar.)
Holders of about 93 per cent of the securities accepted the exchange and Argentina has serviced this restructured debt without interruption since 2005.
However, holders of roughly 7 per cent of the notes, accounting for more than $10bn in debt, refused the swap. These holders, frequently hedge funds that scooped the issuances at bottom dollar as the Argentine economy deteriorated, have pursued lengthy legal battles demanding that Buenos Aires pay face value plus interest on outstanding obligations.
On November 21, 2012, Judge Thomas Griesa of the Second Circuit Court decided in favour of one of these holdout funds, Elliot Management, and ordered Argentina to pay the company $1.33bn.
The judge put teeth into his decision with an unusual interpretation of the pari passu (equal rate) clause. According to the ruling, servicing the restructured debt (again, about 93 per cent of the total) without paying the holdouts would imply subordination of the latter group. Judge Griesa consequently declared any further payment on restructured debt, without honouring debt held by the holdouts, illegal.
The decision could unravel any hope of Argentina’s re-joining the international monetary system. Lost amid the negative coverage of the Argentine government is the fact that it has consistently serviced the restructured debt.
Retiring this debt is a crucial step that Argentina must take to re-enter global financial markets. Its current inability to access international capital has severely distorted the country’s economy. Because the government cannot finance a significant deficit, Buenos Aires has overvalued the domestic currency while implementing capital controls and limiting imports.
The Argentine central bank has exhausted a significant portion of its reserves by defending the overvalued peso. When these reserves hit a seven-year low in January, the central bank could no longer afford to intervene as strongly, and the currency was allowed to plunge nearly 13 per cent over two days.
If Judge Griesa’s ruling is upheld, Argentina’s options are bleak. Either Buenos Aires can pay the holdouts in full, and thus face a cascade of similar claims from other funds, or it can choose not to pay anyone and default again, ripping open the wounds the country has tried to heal since 2001.
Complicating the future of sovereign debt
Legal systems often rely on precedent, and Judge Griesa’s decision could set a dangerous one. If holders of stressed sovereign bonds believe they may eventually cash in the securities at face value, the incentive to accept a haircut diminishes.
Judge Griesa’s critics allege that the ruling undercuts the financial community’s most trusted strategies for managing a structured default. Since 2005, international sovereign debt issued in New York has regularly contained collective action clauses, which allow a qualified majority of bondholders to accept a write-down for all bondholders—thus limiting the influence of minority holdouts.
But much of Argentina’s stressed debt was issued prior to 2005. Buenos Aires and other governments in similar positions have relied on voluntary swaps that exchange old securities for new securities at market value with the addition of a collective action clause.
Lenders will not accept a swap at market value if they think they can hold out for face value. Moreover, as economists such as Nouriel Roubini and José Antonio Ocampo have argued, the potential of a full payoff will diffuse enthusiasm for exercising the collective action clauses anyway.
This could have immediate reverberations in Europe, where the eurozone’s survival may depend on haircuts to the sovereign debt of peripheral countries. For example, IMF support to Greece is contingent upon reduced debt-to-GDP ratios. Greece, in turn, has sought to meet this requirement in part through bond buybacks, offering 34 cents on the euro.
To avoid triggering credit default swaps, Greece has pursued such haircuts on a “voluntary” basis. As in Argentina, Greece’s ability to end the debt crisis will depend on bondholders’ willingness to accept the write-downs—something they may now be less inclined to do.
By accepting this case, the Supreme Court would have the opportunity to reflect on the ruling’s greater implications. That countries with as disparate governments as Argentina, the United States and France agree on this issue suggests that the court ought to take a closer look.
Samuel George is a project manager specialising in Latin America at the Washington, DC-based Bertelsmann Foundation.
2. YPF PROFIT BEATS ESTIMATES ON HIGHER PRICES AND PRODUCTION (Bloomberg News)
By Pablo Gonzalez
March  10, 2014
YPF SA (YPF), Argentina’s largest oil producer, beat analysts’ estimates as fourth-quarter profit climbed 88 percent on increased revenue from sales and output.
Net income rose to 1.9 billion pesos ($241 million), or 4.89 pesos a share, from 1.02 billion pesos, or 2.59 pesos, a year earlier, Buenos Aires-based YPF said March 7 in a statement after the close of trading in New York. Per-share profit excluding some items beat the 4.75-peso average of three analysts’ estimates compiled by Bloomberg.
Argentine President Cristina Fernandez de Kirchner’s government on Feb. 25 agreed to pay $5 billion in bonds to Madrid-based Repsol SA to compensate for the 51 percent stake in YPF it expropriated in April 2012. Argentina seized the oil producer after its output declined at an average 6 percent rate for almost a decade. Oil and gas production climbed by 7.5 percent in the quarter compared with the same period a year ago.
“The company continued to halt declining output seen in previous years,” YPF said in the statement.
YPF boosted crude production by 6.3 percent in the quarter from a year ago, while natural gas output rose 10.2 percent, the company said. The company expects crude output to rise 3 percent this year, gas production to increase 6 percent, company executives said on today’s earnings conference call.
Cost Concerns
Raymond James analysts in a report led by Santiago Wesenack and Santiago Ruiz said the output increases are beneficial while expressing concern for rising costs.
“We expect total output to post positive growth rates at the exploration and production level, as the oil and gas growth trend consolidates,” Wesenack and Ruiz said in a report to clients today. “Moreover, we will be looking for a growth trend in operating expenses as exploration and production margins deteriorated this quarter for this reason.”
The company plans to focus on cost control this year and could eliminate projects if necessary to contain costs, Chief Executive Officer Miguel Galuccio said today on an earnings conference call.
YPF’s capital investment budget of $5.5 billion for 2014 could be cut after last month’s devaluation of the Argentine peso, Chief Financial Officer Daniel Gonzalez said on the same call.
Argentina devalued its currency 15 percent on Jan. 22-23 in the biggest drop since 2002.
YPF’s American depositary receipts were little changed at $28.35 at 10:52 a.m. in New York after earlier rising as much as 3.2 percent. The ADRs have fallen 14 percent this year.
Repsol Compensation
YPF is pledging to invest $37 billion through 2018 and is seeking partners to develop Vaca Muerta, an area in southwestern Argentina the size of Belgium that contains an estimated 27 billion barrels of shale oil. Vaca Muerta is the world’s fourth-largest deposit of shale oil and second-largest natural gas deposit.
Ending the dispute with Repsol should improve Argentina’s energy investment, YPF Chief Executive Officer Miguel Galuccio told reporters Feb. 25 in Buenos Aires. The agreement, less than the half of the $10.5 billion in compensation Repsol initially sought, marks the end of two years of wrangling over the unit.
“We played an important role in fostering the settlement between the republic of Argentina and Repsol,” Galuccio said on today’s call. “We believe we are all winners and we can put that distraction behind us.”
Debt Sales
YPF, after securing shale partnerships with Chevron Corp. and Dow Chemical Co., is seeking more international partners. The Argentine producer on Feb. 18 signed a memorandum of understanding with Petroliam Nasional Bhd., the state-controlled company from Malaysia, to jointly develop an area in Vaca Muerta.
YPF’s cash on hand at the end of quarter was 10.7 billion pesos, while debt increased by 5.8 billion pesos in the quarter to close at 21.2 billion pesos, the company said in the earnings report. The average cost of peso debt was 21.5 percent and 6.05 percent for dollar debt, it said.
The company is monitoring international markets watching for a window of opportunity to sell debt, Gonzalez told investors on today’s call. YPF raised $650 million in international bond market last year to develop shale deposits.
3. ARGENTINA WAGE DEBATE CONTINUES AS TEACHERS EXTEND STRIKE (Market News International)
10 March 2014
Argentina this week will see continued social tension, as striking teachers demand higher wages and transport fares rise.
Teachers in most districts returned to work March 7 after accepting increases of around 30% in their wages, higher than the 22% first offered by the administration of President Cristina Fernandez de Kirchner.
Even so, many teachers went on strike for the two previous days, delaying the start of the school year.
Teachers in Buenos Aires province, home to a third of the country’s 40 million people, will extend the strike until at least Tuesday. They are demanding an increase of at least 35% in the base salary, far more than the 25.5% offered by Buenos Aires Gov. Daniel Scioli, a possible frontrunner in the 2015 presidential election.
Scioli’s administration has called them in for talks Tuesday.
The push for higher wages comes as rising inflation saps consumer spending power, raising concerns of an economic slowdown. The government wants to limit the wage hikes to put a lid on inflation, which many economists say could surpass 40% this year from 30% annual in January.
To contain prices and improve business competitiveness, the government devalued the peso by 23% in January.
While the central bank has kept the official rate at about 7.80 and 7.90 pesos to the dollar since then, it must contain wage demands to keep them down in dollar terms to make the devaluation effective in rebuilding the trade surplus by boosting exports and limiting imports, economists say.
Otherwise higher wages will eat up the devaluation gain in competitiveness by accelerating inflation, according to economists.
It may prove difficult to contain the powerful unions and hold off more strikes and contain social tension.
On Wednesday, the Public Workers Association and the Argentine Workers’ Central Union, a leading labor umbrella group, will strike to put pressure on the government to offer wage increases of at least 35%.
Wage talks are held throughout the year, starting with teachers in February.
Roberto Lavagna, who served as Economy minister from 2002 to 2005, warned last week the country is entering a “semi-recessive scenario,” adding that the second half of the year will be “more complex” given a decline in dollar inflows after the March-September farm export season.
He said on Radio Mitre that the crisis started in 2007 when inflation accelerated into the double digits and the government failed to put in measures to contain consumer prices.
Now workers and pensioners “are those who are paying for the errors” of the government, he said.
The cost of living for the many who live and work in Buenos Aires will take another hit this week with a 29% increase in subway fares, effective Friday.
4. ARGENTINA’S YPF SEES 2014 OUTPUT GAINS; LOWER DRILLING COSTS (Reuters News)
By Alejandro Lifschitz
10 March 2014
BUENOS AIRES, March 10 (Reuters) – Argentina’s state-controlled energy company YPF plans to increase production this year while reducing the cost of drilling in its promising Vaca Muerta shale oil and gas field, CEO Miguel Galuccio said in a conference call on Monday.
The South American country is betting that Vaca Muerta, potentially one of the biggest shale formations in the world, will restore it as a net energy exporter in the years ahead.
Government accounts, already hit by loose fiscal policy fueling one of the world’s highest inflation rates, have been further drained in recent years by expensive fuel imports.
YPF expects to increase crude production by 3.0 percent and natural gas output by 6.0 percent this year, Galuccio told analysts during the call to discuss company’s earnings.
The production growth estimate does not include the bump expected from YPF’s recent purchase of the Argentine operations of U.S. energy company Apache, for which the Argentine company paid $800 million.
Crude output of YPF, which was nationalized by the Argentine government in 2012, grew 2.2 percent last year to 232,300 barrels per day. It’s natural gas production grew 1.5 percent to 34 million cubic meters per day.
“We are consistently drilling and completing vertical wells for $7.5 million,” the YPF chief executive said, adding that each well is taking about 18 days to complete.
The first well drilled at Vaca Muerta cost about $10 million. The increase in efficiency remains far from what will be necessary to make Vaca Muerta profitable. The drilling of similar wells in the United States costs $2 million to $3 million per perforation.
“Our ultimate objective is much more aggressive than $7.5 million per well,” Galuccio said.
A U.S. Department of Energy report shows that Argentina has more natural gas trapped in shale rock than all of Europe, a 774-trillion-cubic-feet bounty that could transform the outlook for Western Hemisphere supply.

The country’s shale gas reserves trail only China and the United States.
 5. TED TURNER SAYS HE’S ‘RECUPERATING WELL’ AFTER SURGERY IN ARGENTINA (CNN Wire)
By Alan Duke
10 March 2014
(CNN) — CNN and Turner Broadcasting System founder Ted Turner says he’s “recuperating well” after falling ill South America.
Turner, 75, confirmed in a statement issued Monday that he “underwent a minor surgical procedure due to appendicitis” during a “brief hospital stay” in Argentina.
Turner’s spokesman previously declined to reveal why he was hospitalized last Friday, saying only that he was there “for observation.”
Argentina’s state-run Telam news agency reported Turner was initially treated in Bariloche, a lakeside city near the Chilean border, about 1,500 kilometers (940 miles) southwest of Buenos Aires. He was suffering from acute abdominal pain, according to clinic spokeswoman Paula Redondo.
Turner was flown later that morning to the capital of Buenos Aires to have surgery, according to Telam.
“I’m happy to report I’m recuperating well and looking forward to getting back to business as usual,” Turner said Monday in his statement. “The doctors and medical staff at both hospitals in Bariloche and Buenos Aires were amazing and took really good care of me.”
He said he was heading back to the United States.
“To my family, current and former colleagues and everyone else who called, sent notes of encouragement and get well wishes, I can’t thank you enough for lifting my spirits during my ordeal,” he said. “During moments like this I tend to reflect on the past, and while I have dealt with many difficult situations in my lifetime, I am humbled by this experience and will be forever grateful to you all.”
Soon after graduating from Brown University and serving in the U.S. Coast Guard, Turner took over the family business — Turner Advertising — in 1963. Seven years later, he bought TV stations in Charlotte, North Carolina, and Atlanta to kickstart a media empire that would one day include TBS, TNT, HLN, Cartoon Network, TCM and CNN, which launched in 1980.
In 1996, Turner sold Turner Broadcasting to Time Warner, though he remained active in the business for several more years.
Besides his business ventures — including the Ted’s Montana Grill chain and the renewable energy company RT Solar — Turner has been one of the United States most generous philanthropists, including a $1 billion donation to the United Nations in 1997.

“Diplomacy is seduction in another guise, Mr. Adams. One improves with practice.” 
~ Benjamin Franklin – the father of the American Foreign Service

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