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The swap offer is more money than what the market had expected
Clarin
March 24, 2010

The proposal would include payments for late interest and on the GDP coupon bond delivered in 2005. Thus, the government seeks to improve adhesion of the bondholders to the offer. Yesterday it was presented to Italian finance authorities.

by Nicol s Wi azki, from Cancun, Mexico

The swap offer that the Argentine government will make to the bondholders that didn't want to enter the operation in 2005 could represent more money than the market expected. It's the thermometer with which it seems the investors have turned to among those who met with the economic team at the IDB meeting that ended yesterday, on this Mexican beach.

The improvement would be due to the payment of interest generated since the swap of 2005, to the bondholders that didn't accept entering back then. And the dividends on the GDP coupon, which follows the growth of the economy.

The government, thus, is seeking to improve adhesion to the swap proposal among the bondholders that still have in their hands paper for more than US$20 billion that is unpaid. According to what Economy Minister Amado Boudou had said, adhesion would be more than 60%, while the official expectation is looking to exceed 75%.

The offer, according to a report from the Reuters News Agency, also contemplates the possibility that investors buy bonds for US$1 billion, the fresh money that Economy Minister Amado Boudou hopes to be part of the operation.

But the proposal doesn't establish the obligation of the bondholders to make this disbursement. Yesterday in a radio interview, Finance Secretary Hernan Lorenzino insisted that the "proposal includes an emission of US$1 billion" and insisted that "the government will not pay commissions." That he didn't mean to say was that there would be no commissions, but that they will be from the bondholders, discounting that margin from what they receive through the operation.

The few finance mavens left yesterday on the last day of the IDB speculated with whether the commissions will be more substantial than those of 2005, which could loosen up that disbursement for US$1 billion, which the Palacio de Hacienda hopes for.

Among the factors that are setting of strong expectations in the market are the interest accumulated between 2001 and 2005, which were paid in cash in the last swap. While now they would do it with a bond, to pay accumulated interest would improve the operation.

The value of the offer to the bondholders under consideration would be an amount close to 7 dollars for the payment of the GDP coupons, while the operation before was worth 2 dollars.

During this meeting, which brought together the top leaders of the world economy, the government of Cristina Kirchner announced two steps forward for finalizing the offer for the bondholders that didn't want to enter the 2005 swap.

First, on Sunday it came out that they'd gotten approval of the Securities and Exchange Commission (SEC) which acts as the stock market regulator for the United States financial markets. Yesterday, it went up another scale, because the offer was presented to the Italian market authorities (CONSOB). Now all that remains is the approval by Luxembourg for the complete swap to be approved and the offer to be made in 15 days.

On that, Lorenzino insisted yesterday in that "in a couple of weeks the operation will be formally launched."

The economic team also let it be known that it will offer two possibilities, a bond for the small investors and a discount option, for the larger traders.

The par option, according to what came out, would have a ceiling of 50,000 dollars and would include a bond coming due in 2038, and an interest rate that would rise over time. For the late interest, they'd deliver a 2013 bond that would be paid off at maturity, and GDP coupons.

In the Discount option, the main bond would be for 2033, also with a varying interest rate over time. For the late interest they'd deliver a 2017 bond and the GDP coupons.

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