Credit Review

Argentina debt plan angers bondholders

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In early November, Roberto Lavagna, the economy minister of Argentina, revealed a proposal to restructure $100 billion in defaulted debt, setting the stage for the largest debt write-off in history. Bondholders, however, have found little comfort in a plan strikingly similar to those they have already rejected.

Comitato Creditori Argentina, a group of bondholders representing approximately $4 billion of Argentine bonds based in Italy, immediately expressed disapproval of the plan as did the Global Committee of Argentine Bondholders (GCAB), a group of creditors representing about one-third of the total debt.

According to the Dow Jones Newswires, the implementation of the plan is slated for November 29 and will swap 152 different bonds, which are issued in six currencies and eight different jurisdictions, for nine new bonds under four legal systems and currencies. Moreover, the proposal includes a 75% haircut, which bondholders have refused in previous plans.

In September 2003, Lavagna also announced a 75% haircut in the value of foreign debt. The International Group of Rome (IGOR), the largest retail creditor of Argentina representing €15 billion of public debt, strongly opposed the plan. These sentiments reverberated throughout the European community of investors, especially among GCAB, which represents over 90% of international investors.

The most recent proposals, which were sent to the US Securities and Exchange Commission (SEC) for approval in early November, will have to be ratified by regulators in all the countries in which Argentina will sell the securities. There is speculation growing that if the SEC approves the proposal, Consob, the public authority responsible for regulating the securities market in Italy, will also be likely to accept the proposal.

But while the Argentine government remains hopeful that the plan will be accepted,critics argue that it offers few improvements over the last set of proposals announced in June. In particular, the new plan does not address interest accrued on the defaulted debt, which some estimate to be approximately $23 billion.

Since its default in 2001, negotiations between the Argentine government and its creditors have been mired in controversy. Bondholders have grown increasingly frustrated with the government and its negotiations, claiming that they have not been able to actively participate in the restructuring. During the past year,the relationship between the country and bondholders became so stressed that GCAB announced it would no longer participate in the consultative groups established to assist in the debt restructuring.

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