MercoPress. South Atlantic News Agency

Green light for Argentina to restructure 20 billion in defaulted debt

Economy Minister Amado Boudou gave details of the operation in Mexico

Argentina has US regulatory approval to restructure 20 billion USD in defaulted debt and expects to launch the deal within three weeks, announced the government on Monday.

The final approval from the US Securities and Exchange Commission on the swap will allow Argentina to clean up fallout from its massive 2001/2002 default and pave the way for new debt issues to meet soaring debt obligations this year.

“The swap is in the last stretch. Now all that's left is to register the terms in the Italian and other markets,” Economy Minister Amado Boudou told reporters on Monday in Cancun, Mexico, where he was attending the annual Inter-American Development Bank meeting.

“Between the end of March and April 15 it will be done,” Boudou said in a radio interview broadcast in Argentina.

The Argentine government has said it wants to raise one billion USD in fresh capital with a new bond as part of the deal. But Boudou indicated that would depend on the government getting a low enough interest rate.

“We will advance in this as long as the rate is reasonable,” he said.

Argentina's Merval benchmark stock index .MERV closed at an all-time high of 2,413.67 points, driven by heavy buying of local bank stocks, which hold large quantities of sovereign debt and which tend to rise when bond prices are higher.

The swap and any debt issues that follow reassure markets that Argentina will meet its debt obligations this year, which rise to 15 billion USD, according to estimates of some economists.

An economy ministry official said on Monday that the debt obligations this year are 12.2 billion, not including some short-term debt and debt owed the Central Bank.

The Argentine government has filed details of the offer with Japanese, Italian, Luxembourg and US regulators. Argentine officials plan to travel to California, London, Italy and Germany to meet with investors and try to persuade them to participate in the deal.

The swap aims to take up to 20 billion in defaulted bonds out of the market, neutralizing legal challenges to new Argentine debt issues eight years after the country's 100 billion default hurt bondholders from Italy, Japan, United States and elsewhere. Some 80 billion in bad debt was restructured in 2005.

Both retail and institutional investors will be offered bonds and GDP warrants in exchange for defaulted debt that they tender. They will also get another bond in compensation for interest and GDP warrant payments they missed out on by not entering the 2005 restructuring.

Investors who entered the 2005 restructuring received bonds as well as gross domestic product, or GDP, warrants, which pay a coupon when the economy expands over a determined level. Those instruments gave good returns as the economy boomed from 2005-2008.