How Investment Bankers are Helping Argentina

Amazingly, amidst all the financial-market chaos, there is still old-fashioned shoe-leather investment banking going on, and some of it is very ambitious:

Citigroup Inc., Barclays Plc and Deutsche Bank AG proposed a debt-restructuring plan to Argentina that may help the country raise cash as declining commodity exports curb tax revenue, a government official said.

The proposal aims to get bondholders who refused to participate in Argentina’s 2005 debt renegotiation to swap their defaulted securities and to put up fresh cash to buy new debt, said the official, who asked not to be identified because he isn’t authorized to speak for the administration.

This is an interesting and hopeful turn of events. Argentina has some $20 billion in defaulted debt outstanding — much more, if you compound interest on the debt which hasn’t been paid since 2001. Bondholders had the opportunity, in 2005, to swap their defaulted bonds for new government debt at 30 cents on the dollar; many didn’t, and have been kicking themselves ever since.

At the time, Argentina’s president, Nestor Kirchner, made it clear that if anybody refused the offer, they would get nothing. Now, however, his wife and successor Cristina is changing that tune:

A deal would represent "Argentina’s definitive normalization in the world," Fernandez said in a speech at the Council on Foreign Relations in New York, prompting a rally in Argentine stocks, bonds and currency.

"Whoever owes money should pay their debts, as a general principle," she said.

The interesting thing here is that the proposal is coming from the sell-side, actually doing its job as an intermediary between issuers (Argentina) and investors. The irony is that neither Argentina nor its bond investors have had any nice things to say about investment bankers for years, yet a deal structured by those very bankers looks more likely now than ever.

From the Argentine point of view, accepting the deal will mean working closely with Citigroup — the bank which, more than any other, was (unfairly) blamed for the Argentine financial crisis. The investors, meanwhile, will have to deal with Barclays — which was responsible for the initial cram-down deal, and whose senior executives managed to annoy virtually all emerging-market bond investors with their pro-Argentine rhetoric back in 2004 and 2005.

The one group still not playing ball is the group of vulturish hedge-funds calling themselves American Task Force Argentina. They claim that any bond exchange on worse terms than the original, in 2005, will never be taken up. They’re lying. The banks are right: a deal offering something, as opposed to no deal at all, would actually be taken up by at least half of the remaining holdouts. And Argentina, at that point, would be well on the way to regaining entry to the international capital markets.

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