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Optimism grows on Argentina deal 0

Jul 1, 2014

Jorge Capitanich, Argentine government chief of
staff, speaks at a press conference on Monday
Source: Casa Rosada

Argentina and holdout creditors may have not started negotiating yet, but market participants said they were hopeful the parties would reach an agreement that would prevent the country defaulting. 

Holdout creditors led by NML Capital said on Monday that Argentina had not started negotiations ( see separate story), and the sovereign is expected to enter a 30-day grace period today on a payment due Monday on restructured debt. Yet some observers are optimistic the sides will reach a deal before the country is formally declared in default after the grace period expires. 

Mike Gerrard, MD at restructuring and M&A advisory firm BroadSpan Capital, said Argentina’s efforts to normalize relations with the investment community showed the country was likely to enter the negotiations with goodwill, but that the talks would not be easy. 

"Importantly, Argentina has recently reached agreement with its Paris Club creditors and with Repsol. Looking at the rulings in the US, there could be a lot to gain from a negotiated solution. That doesn’t mean there won’t be a different narrative on the ground in Buenos Aires, but reaching a practical solution that would allow Argentina to regain access to the international capital markets is important. So it seems there is a path here, rocky as it may be, toward negotiation," he told LatinFinance

The Argentine government would likely continue using hostile language toward holdout investors in order to please its support base at home, but NML and Argentina seemed to be aware that the window of opportunity that has now opened "is the best one that has existed since this started", he said. 

"Argentina likely recognizes that the cost of not having access to the international capital markets can outweigh the cost of settling, it’s a pragmatic look at what’s the best for the country. Although they may prefer not to negotiate, given the way the process has unfolded it’s probably a better strategy than the alternative." 

A rise in the price of Argentina’s dollar and peso-denominated bonds on Monday morning suggested investors were optimistic the negotiations would bear fruit, a UK-based investor said. 

"The market is pretty bullish … No one really knows, but certainly the noise that we’re seeing shows that that there is some type of momentum that would lead to an agreement," he said. 

The fact that Argentina’s president Cristina Fernández is due to finish her second mandate next year could help the negotiations, said a DCM banker in New York. 

"Cristina does not want to leave behind the legacy of having put the country in default," he said. "Her back is against the wall, and they are going to find a way to negotiate with the holdouts … She is going to continue to rattle the sabre. She’s a populist, what is she going to do?

"Their bonds are definitely off the low, so people are expecting an upside," he added. LF


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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management