good news ... we should see the price bounce back a little now
Court ruling temporarily quells Argentina default fears November 29, 2012, 3:46 PM
The countdown to a possible default by Argentina has been paused, with a U.S. appeals court Wednesday temporarily setting aside a previous judicial ruling that raised the prospect of Argentina not servicing restructured debt securities on schedule.
The decision “gives Argentina time to move forward with alternative plans to negotiate with holdouts or take actions to circumvent the action of the courts and avoid a technical default,” said emerging-market strategists at RBS in a note to clients Thursday.
Local reports this week indicated Argentina may be willing to open a debt exchange, much like the ones it had in 2005 and 2010 that called on investors to swap defaulted debt for new securities. The debt exchanges stemmed from Argentina’s massive $95 billion default in 2001. The debt swaps resulted in 93% of bondholders agreeing to take roughly 35 cents on the dollar. The investors that didn’t take part in the swaps are suing to be repaid in full.
A Nov. 21 ruling had ordered Argentina to put $1.3 billion into an escrow account to guarantee payment for holders of old Argentine debt as a Dec. 15 payment of $3.3 billion to those holding restructured bonds came due. But the ruling by the U.S. Court of Appeals for the Second Circuit puts that order on hold until at least Feb. 27 when the court is scheduled to hear oral arguments.
The decision by the appeals court “has bought time for Argentina, which is good news for external bonds,” wrote analysts at Barclays. “We move the credit to neutral from underweight, reflecting the removal of the risk of a default in December, good technicals, and the dramatic change in the stance of the administration,” after the Nov. 21 ruling.
Argentina’s President Cristina Kirchner and other officials have said they do not want to pay the investors who didn’t participate in the previous debt exchanges.
Should the country “maintain its less intransigent posture, markets will respond positively,” on the perception that a debt swap will reopened or that the chances of “a constructive (but possibly lengthy) negotiation with holdouts will have increased,” said Barclays. “This, in turn, would benefit Argentina’s position in the courts, we think.”
In the markets Thursday, securities linked to economic growth in Argentina climbed, with the TVPA GDP warrant up 8.1% at 80.50 Argentine pesos ($16.67). The Merval equity index AR:MERV +0.46% rose 3.4% and the Global X FTSE Argentina 20 ETF [s: argt] gained 3.1, wiping out Wednesday’s loss of 1.6%.
– Carla Mozée
TRY Price at posting:
$4.16 Sentiment: Hold Disclosure: Held
