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Swap: now they are analyzing reducing the benefits for the bondholders
Ambito Financiero
January 04, 2010

Kirchner doesn't want to recognize the payment of the GDP coupon
Boudou goes to the U.S. to present the operation

The Economy Ministry is preparing the last details of the swap offer, which will be presented to the U.S. stock exchange oversight organization in no more than two weeks. But the proposal to the bondholders that didn't accept the operation in 2005 is still not totally finished, and the discussion at this time has to do with one key aspect: the recognition of the payment connected to the GDP coupon bonds from 2006 to 2009.

The alternative of paying them in a lump sum has already been totally ruled out. The banks that are advising on the operation (Barclays, Deutsche and Citi) suggested the possibility of paying the coupons, but with new bonds: at seven years for small investors and only three for the large ones. The Economy Ministry supports this idea.

However, there are obstacles in the way. First, ex-president N stor Kirchner already put doubts on such a beneficial offer for the "holdouts", considering that the market value of the swap is more than US$50 against the US$35 it was worth in 2005. And the form of reducing this attractiveness is not to recognize past payments on the coupon, an aspect of the offer already criticized by private analysts.

The negotiation is not simple, the advising banks have already committed the presence of at least US$12 billion in large investor funds (60% of the total), it always comes out that the proposal is sufficiently generous while still in theory not representing an improvement related to the one offered in the 2005 swap.

Objection

This debate will be finished this week, when Finance Secretary Hernan Lorenzino returns from vacation. Considering the objection from Kirchner himself, it's not likely that the payment on the GDP coupons for the last three years will end up being included.

Now begins the countdown for the offer. Its final approval is expected from the SEC on January 12th, but it's possible that this will happen a bit later than expected, without there being a dramatic delay. With luck, the swap could formally begin between the third and fourth week of this month.

According to Economy Minister Amado Boudou, at the end of January the economic team will launch a road-show for various cities to promote the swap. Among others it will include Japan, Italy, Germany, London (as the financial capital of Europe) and the United States.

According to what this newspaper could establish, Boudou and Lorenzino have planned a trip to Washington around next week. The goal is to present the features of the swap to the U.S. Treasury. And it will also include meetings with the multilateral organizations to close out disbursements for this year, including the IDB and the World Bank.

But there is another issue that the Palacio de Hacienda wants to accelerate in the United States almost in parallel with the swap with the bondholders: an accord with the Paris club, but without passing through an agreement with the IMF. Of course any step forward on this issue will have to come with the support of the U.S. government, which is the man creditor country with that organization. At the same time, Economy subscribed to an accord with Lazard Freres to adivse on the negotiation with the Club and only will collect honoraria if they reach some kind of accord.

Here are, definitively, the main features of the swap with the bondholders, according to what has come out until now:

A Discount bond will be offered, which includes a 66% discount in relation to the bonds that are delivered in the swap. But also the investors will have the chance to subscribe to a Par bond, without a nominal haircut, while it quotes at a heavy discount in market value. The government will also deliver GDP coupon bonds, in the same proportion as the 2005 swap.

For expired interest between 2005 and 2009 they will deliver a new bond at seven years for the large investors and another at three years for the small ones. Still under debate is the payment through a similar bond the accumulated payments for those three years on the GDP coupon.

The investors will have to subscribe to a new bond at a 9.5% interest rate for a total of US$1 billion. This obligation only would fall to the large investors. What is left to reach this amount the advising banks will pay in.

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