MercoPress. South Atlantic News Agency

Argentina seeks to ease creditor concerns

Argentina's government has jumped to the defence of a so-called “most-favoured-creditor” clause in its $100bn debt offer after mounting concern that it contained an important loophole.

Argentina on Friday formally opened its offer to exchange 178 types of defaulted bonds held by more than 500,000 investors around the world.

The clause, which aims to protect investors by giving those who accept the current offer the right to any subsequent improved offer, has become one of the government's main marketing weapons to entice investors.

Late Thursday night, an official at Argentina's economy ministry, says: "This is the first time a sovereign has included a clause such as this. Its strength is that it gives [investors] a clear idea that we are not going to make another offer."

Yet the clause has come under fire from bondholder representatives, who claim it is next to worthless. They say it omits the word "settlement" from a key sentence, allowing the government to settle with some individuals without passing on the benefits to the rest.

The government official ruled out any such possibility. "It is absolutely inconceivable the government would make a settlement. Argentina has not made any in more than 40 years and we are not going to in the future."

He admitted that the government "had gone back and forth on the issue" of including the word in the Prospectus Supplement but had ultimately decided against it for administrative reasons. Including it, he said, would have risked exposing Argentina's administrative resources to unbearable pressure in the event of settling with a bondholder.

"We took it out because it really adds no value from a reality perspective and it creates a lot of problems," he said. "Argentina has no centralised authority for dealing with the resulting paperwork in the inconceivable event of making a settlement." The official further moved to reassure investors by saying that both politically and economically it would be impossible for Argentina to settle with an individual bondholder.

Such a settlement would mean having to ask Congress for additional funds to cover the cost of the settlement. "Can you imagine us trying to do that? It is obvious we would get nowhere." He added that the size of the debt to be restructured a record made settlement a useless way of dealing with investors who decided to reject the offer or "hold out". "Using settlements might make sense if the amounts we were dealing with were tiny and manageable but they are not. Even if we only got 5 per cent of hold-outs it would mean $5bn [?3.8bn, £2.7bn]."