Argentina’s plan to switch bondholders into local law
securities which would be immune from last
week’s US court judgment was praised by analysts as
a smart move, although the effect on prices is unclear.
The announcement came after a
US appeals court last week rejected Argentina’s case, which means the sovereign could be forced to pay holdout
creditors $1.33 billion.
Argentina will submit a bill to congress allowing it to
reopen an exchange to holdouts on similar terms as the 2005 and 2010
restructurings – which captured a 93% participation rate – as well as offer
restructured holders the chance to change to Argentine-domiciled bonds.
Jefferies described the move as “pragmatism,” while noting
that “the question now is execution risk.” Specifically, it is unclear whether
Argentina has the logistical framework to pay local law bonds. Also, it remains
to be seen to what extent the bondholders would accept.
“We assume that pesification risk does not pose a
deterrent near term with FX reserves stabilizing and some early optimism of
regime change in 2015 but more importantly that onshore would provide potential
payment against risk of a protracted period of non-payment offshore,” the shop
said. “It is clearly a decision between the least worse alternative.”
A few holdouts may take the sovereign up on the offer,
offering upside for asset prices. Bulltick noted “there is a material chance”
of a reaching a level “perhaps even north of 95%,” up from 93%.
“Argentine bonds will outperform EM peers this year by a
very wide margin,” Bulltick said.
Argentina defaulted on $100 billion in debt in 2002, with 93% of
creditors accepting restructurings held in 2005 and 2010. Holdouts are suing
for $1.33 billion. A US appeals court ruled on Friday that Argentina must pay the
holdouts what it owes but delayed enforcement until the US Supreme Court
decides whether or not to hear an appeal.
Fernández de Kirchner claims a ruling against Argentina
would undermine future debt restructurings. LF