MercoPress. South Atlantic News Agency

Argentina wins latest round in effort to restructure debt.

Argentina won an important battle on Thursday in its attempts to restructure about $100bn (?81bn, £56bn) in defaulted debt after the country's private pension funds agreed to accept the government's forthcoming offer.

The agreement, which will hand President Néstor Kirchner's administration a minimum investor participation level of close to 20 per cent, comes as the government puts the final touches to its restructuring offer.

Reports this week suggested the formal proposal would be launched by mid-November at the latest, and would remain open for five weeks. Sources at the economy ministry said Argentina had all but gained regulatory approval from the US Securities and Exchange Commission to go ahead with the debt swap.

Leading bondholder groups such as the Global Committee of Argentina Bondholders (GCAB), which claims to represent investors holding almost half the total number of defaulted bonds, are furious.

The organisation has rejected the government's proposed offer, which most agrees amounts to net-present-value recovery levels of 25 cents on the dollar. In a meeting in Washington on Monday, GCAB's leaders threatened litigation if Argentina did not improve the terms of the proposed restructuring.

However, it now appears unlikely that Argentina will improve its offer. Indeed, the government seems confident it can gain a significant participation rate in the swap. That confidence has been buoyed in recent weeks because the fall in yields of US Treasuries and emerging market bonds has made Argentina's restructuring offer look less onerous.

Thursday's agreement with the pension funds, known as AFJPs, is expected only to add to the Kirchner administration's spirits and belief that it can now use the agreement as a platform to persuade other investors to take the offer.

The exact terms of the deal with the AFJPs, many of which are owned by international banking groups such as Citigroup, BBVA, HSBC and Santander, are still unclear. Clarin, Argentina's best-selling daily newspaper, reported this week that the government would swap bills for short-term "Boden" bonds, which the country has been issuing since default in December 2001.

The AFJPs are expected to swap the rest of the defaulted debt they hold for so-called quasi-par bonds, one of the three new securities the government will offer investors in the forthcoming swap. Unlike the other two instruments, these bonds are to be issued in pesos and under Argentine jurisdiction, making them significantly less attractive to oversees investors.

In return, it is believed the government will allow the funds to value the new securities at their nominal value for at least five years to ease the hit that the debt write-off delivers to their accounts.