Italian holders of defaulted Argentine bonds will reject a proposed new bond swap and continue with court cases against the government unless the terms of the deal are improved, a representative said on Sunday. On Thursday, Argentine President Cristina Fernandez's government said it would soon launch a swap to resolve a dispute with holders of $20 billion in bonds who rejected a 2005 restructuring, some of whom are suing Argentina to recover the full value of the bonds.
Economy Minister Amado Boudou said investors would have to swallow losses of at least 65 percent to enter the swap - an even deeper discount than the 2005 deal rejected by around a quarter of bondholders, many of them Italian retail investors. "If there was a proposal on these terms, then the court cases against Argentina would continue and Argentina's problems will remain the same," said lawyer Mauro Sandri, president of the Committee for Argentine Creditors.
Sandri said the bonds were already being traded at between 25 and 30 percent of face value in the secondary debt market. If Argentina's economy were able to perform as strongly in coming years as neighbouring Brazil has, then the bonds would see their value improve sharply, he said. "If investors can get that much cash today, why would they take new Argentine debt which matures in 20 or 30 years time?" said Mauro, who represents investors holding some $800 million in Argentina debt in a US court.
"In my opinion, you would need an offer of around 60 or 70 percent of face value," Sandri said. "I think a loss of 30 percent would be acceptable under current conditions. That would achieve its aims: the US cases would lose their momentum." South America's second largest economy defaulted on some $100 billion of debt in 2002 at the height of an economic crisis. Italian investors held a sizeable share of the defaulted debt but proved reluctant to sign up to the 2005 deal.
Newspaper Corriere della Sera estimated some 300,000 Italian savers still hold defaulted Argentine bonds with a face value of up to 8 billion euros ($12 billion). Minister Boudou said about $10 billion worth of defaulted bonds, or around half the amount outstanding, were already committed to the swap.
However, a major holder of Argentine capital NML Capital Ltd predicted the offer would fail and called on Argentina to use its foreign reserves to pay back investors in full. Next week, Buenos Aires is expected to inform regulators in the United States and beyond of the details of its new plan. Boudou said bondholders who enter the swap would subscribe to fresh bonds at a ratio of 10 cents of new debt for every $1 of old bonds tendered.