MercoPress. South Atlantic News Agency

Argentina launches defaulted bonds swap with a 66.3% discount

Economy minister Amado Boudou

Argentina offered new bonds to holders of 20 billion US dollars of sovereign debt left out of an earlier settlement, seeking to end a nine-year default and regain access to international capital markets.

The government proposed similar terms to its 2005 restructuring, granting securities due in 2033 at a 66.3% discount, Economy Minister Amado Boudou said at a news conference in Buenos Aires. The proposal excludes past payments on warrants linked to economic growth and pays past due interest with 8.75% bonds due 2017. Argentina also may sell as much as one billion USD of new bonds due 2017, he said.

Argentina’s offer would compensate holders from Greenwich, Connecticut-based Gramercy to Stone Harbor Investment Partners of New York, as well as tens of thousands of individuals, many in Italy.

For the Argentine government, resolving the issue sets the stage for its first international bond sale since the 2001 default on 95 billion USD of debt. The country needs to borrow 12.5 billion this year, about 6 billion of which has not been lined up yet, according to estimates from Credit Suisse Group AG.

Boudou appealed to holders not to make a “mistake” and reject the offer. He said the government is “tough but serious” with debt holders. The government expects at least 60% of holdouts to accept the offer, Boudou said.

Argentina’s borrowing costs fell to the lowest level since 2008 ahead of Boudou’s announcement, with the extra yield investors demand to own Argentine bonds instead of US Treasuries narrowing 17 basis points, or 0.17 percentage point, to 6.01 percent, according to JPMorgan Chase & Co.

That’s the smallest yield gap since June 2008. Boudou said lower interest rates and a long-term sustainable debt level are the goals of the proposal and the deal creates a “new opportunity” for investors.

Creditors will pay banks’ fees on the swap, Boudou said. The government will pay no more than 160 million USD in interest, while par bonds issued in the swap will be capped at 2 billion, he said. Boudou said individual investors holding less than 50,000 USD of debt will receive a cash payment.

The government plans to start the debt swap offer in 10 days and will keep it open for 30 days. By excluding payments on the GDP-linked warrants, the government will save about 1.36 billion, Boudou said.

For investment funds that bought defaulted debt at prices as low as 15 cents on the dollar after the 2005 exchange, “it’s a no-brainer,” Redrado said in an interview before the announcement. The government had vowed after that restructuring not to negotiate a new deal with holdout creditors.

Argentina is restructuring debt as the economy emerges from an economic slowdown. South America’s second-largest economy grew an average of more than 8.5% a year from 2003 to 2008, before slowing to 0.9% last year, according to the national statistics institute.

The government budget forecasts economic growth of 2.5% this year, while Boudou said earlier this month that 2010 growth will exceed 5%.