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ECONOMY | 28-12-2023 00:35

Perpetual bonds unlikely to be the answer for indebted Argentina in YPF case

Javier Milei’s suggestion that Argentina could issue debt to comply with a US$16-billion lawsuit award related to the nationalisation of oil company YPF has met with scepticism from investors.

President Javier Milei’s suggestion that Argentina could issue debt to comply with a US$16-billion lawsuit award related to the nationalisation of oil company YPF was met with scepticism from investors who have been repeatedly burned by the serial defaulter.

Milei, who faces billions of dollars in upcoming sovereign bond maturities, told LN+ TV late on Tuesday that his government considers offering a perpetual bond — a type of security that pays interest but has no maturity date —  to raise the money it needs. The Economy Ministry hasn’t provided details about the plan.

“There is no chance for Argentina to go out there issuing and even less chance on a perpetual bond,” said Joaquín Almeyra, a fixed-income trader at Bulltick LLC in Miami.

The country’s most recent experience with an ultra-long issue — a century bond sold in 2017 and restructured just three years later — “was a very negative one, so I think it’s not doable in this context,” Almeyra said.

After several years of litigation in New York, a judge awarded plaintiffs US$16 billion in a lawsuit claiming that Argentina had fumbled key legal aspects of YPF’s 2012 re-nationalisation, which followed its privatisation in the 1990s. Burford Capital, a litigation fund that backed the case, stands to receive US$6.2 billion of the total. 

US District Judge Loretta Preska in Manhattan has given Argentina until January 30 to “seek expedited treatment” from an appeals court. She’s also making the country pledge assets by a January 10 deadline. The assets are YPF shares and receivables from the Yacyreta hydroelectric plant on the border with Paraguay.

Meeting these two conditions on deadline would pause Preska’s ruling for Argentina to pay US$16.1 billion. Argentina has already said it simply can’t do so, citing the time needed both for Milei’s new government to “get up to speed on appellate issues” and to get approval from lawmakers to pledge the assets. Meanwhile, it is appealing Preska’s ruling in a higher court. 


‘Kicillof tax’

During his TV interview, marked by political jabs at rivals, Milei said Argentina doesn’t have money but has “willingness to pay.” He then targeted Buenos Aires Province Governor Axel Kicillof, who spearheaded efforts to nationalise YPF in 2012 and who said at the time that Argentina wouldn’t comply with company bylaws requiring any nationalisation to include a tender offer to all shareholders. 

“What we’re going to do, it’s an idea we’re working on, is to create the Kicillof tax,” he said, adding that Argentines would be reminded of the former economy chief’s “monstrous mistake” by having to come up with dollars to pay interest on the perpetual bonds every year.

Kicillof declined to comment, saying through a spokeswoman that he is focused on drawing up policies to mitigate the impact of the federal government’s austerity drive.

While it isn’t clear how such a tax would work, it would be unlikely to solve Argentina’s main problem: a chronic lack of dollars. 

With Central Bank reserves in the red, the country needs to renegotiate a US$44-billion deal with the International Monetary Fund. It also owes interest and principal to holders of the roughly US$65 billion sovereign debt it restructured in 2020, with the first major payments coming due in January, according to Economy Ministry data. 

“It would be crazy to sell a perpetual bond at current interest rates,” said Fernando Losada, a managing director at Oppenheimer. “Considering ‘there’s no money,’ they would have to pay all obligations with bonds or by offering shares in real assets, which would be politically costly.” 

While Argentina assets have rallied on hopes Milei will pull South America’s second-largest economy back from the brink of collapse, its debt remains at deeply distressed levels. Dollar bonds due in 2046 are trading at around 35.1 cents on the dollar, with a yield of more than 14 percent.

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by , Bloomberg


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