Argie Workout Suspended

The combination of Argentina’s souring economy and the fallout from the government’s pension fund takeover plan make an agreement with holdout creditors proposed earlier this year unlikely in 2008, according to a banker on the deal. Argentina pleased investors in September with talk of a workout plan with holdouts from its 2005 restructuring. The sovereign hired Citi, Barclays and Deutsche Bank to run the talks, which involve renegotiating terms on ARP and USD debt. However, President Kirchner’s plan to nationalize $26bn in private pensions – passed in Argentina’s lower house Friday and headed for the Senate – has jolted the country’s markets, hurt investor sentiment, upending the tenuous stability that had made such talks even a marginal possibility. “The par bonds, which are part of the USD denominated bonds, are trading at 17 [cents on the dollar,]” says one hedge fund investor whose shop has historically bought Argentine bonds. “If I’m holding untendered debt at levels below the 2005 renegotiation, it’s not a good time to come to me with these kinds of talks,” he adds. It is crucial that the workout happen at the same time as Argentina implements its promised Paris Club debt and local liability renegotiation, says the banker. It does not make sense to proceed with only one of those three items, he adds. Argentine watchers say that in mid-October Nestor Kirchner, former president and Cristina’s husband, who is widely believed to hold the reins of power in the country, felt that a deteriorating international environment meant that even if it reconciled itself with markets, Argentina would not be able to raise additional finance. “Nobody knows,” says a banker working with Argentina, asked about what the sovereign will do next.