In June, the GCAB hired Bear Stearns as financial adviser, to match the six financial advisers the Argentine government already has telling it what to do. In July, the committee was on the road, telling audiences around the US and Europe that the government’s growth projections, on which it based its 75% haircut offer, are overly pessimistic. But what has really got bondholders hopping mad is Argentina’s current wealth: in particular, some $17bn in foreign exchange reserves.
“They’ve been riding this thing, not paying any interest whatsoever, and now they’ve accumulated a ton of foreign exchange reserves,” fumed the GCAB’s co-chairman, Hans Humes, at the roadshow in New York. “Right now what Argentina has put on the table we consider completely unacceptable.”
Talks stymied
The GCAB is also pretty irate that the Argentine government will not talk to them. Negotiation has become the ‘n’ word – elusive in spite of IMF pressure on the Argentine government to talk to creditors. Apparently, Bear Stearns made an effort to get in touch with the banks advising the Argentine government and was “immediately rebuffed in that attempt”, says Dan Celentano, part of Bear Stearns’ restructuring group.
On its roadshow, the GCAB emphasised that it was not putting forward an alternative proposal, just some projections for the government to think about. Still, it quickly emerged that it was looking at a 55%-60% recovery rate.
In the market, participants are sensitive to Argentina’s intransigence. “It’s unusual for a debtor nation to be this aggressive for this long,” says one trader. Still, people are none too impressed by the GCAB’s efforts either. “There was a lot of negative feedback about the aggressiveness of the assumptions and statements by the GCAB,” the trader says of market reactions to the meeting.
Opposition lines up
The GCAB was set up in January and represents a large number of Italian retail investors who lost their shirts. Also represented is the Swiss Bankers Association and Japanese banks Shinsei Bank and Bank of Tokyo Mitsubishi, which lent about $1.5bn. The Argentina Bondholders Committee, comprising mainly North American investors, is also participating. Given the geographical spread of creditors, the GCAB hopes governments around the world, and in particular the G7, will put pressure on the Argentine government to treat creditors fairly.
Whether they will or not remains to be seen. “The joker in the pack is what the G7 and IMF’s attitude will be to Argentina and to what extent they will put them under pressure to negotiate with the creditors,” says Joe Boyle, of specialist debt broker Exotix. “But it’s very hard to judge.”
Realistic compromise
Given the figures, both sides are coming up with, one trader suggested a compromise might be similar to the 61% nominal haircut in net present value terms that Serbia achieved in its restructuring. “That’s probably not a bad benchmark for what Argentina should be able to achieve,” says Mr Boyle. But with “two pretty unreasonable postures”, he predicts that the “process has a long way to go”.
Traders point out that with two-and-a-half years now gone since the default, some banks and original creditors have long since sold off their holdings in the secondary market. On its roadshow, the GCAB was sensitive to efforts by the other side to describe its membership as “vultures” – in other words investors who, rather than losing money, have bought up the debt cheaply in the secondary market and are now seeking to make a big profit.
The market clearly does not seem overwhelmingly expectant of an imminent deal. One of the most liquid issues – Argentina’s 2018 global bond – traded as high as 30 plus in April on expectations of a settlement. It then fell as low as 27 in June, and is now marginally up at about 28 cents on the dollar. “Things are a little bit in limbo,” says Mr Boyle.One thing that is certain is that the Argentine government will begin its own roadshow soon to present its side of the story. Still, it might be better if it was talking directly to the creditors instead. “I don’t know how much value there is to all this huffing and puffing in the public domain,” complains one trader.
