September 5, 2014 / 1:13 PM / 5 years ago

Argentina says 'many creditors' want to swap into local law debt

BUENOS AIRES (Reuters) - Many investors are interested in swapping global Argentine bonds for paper governed by local law, the government said on Friday, a day after the Senate approved the proposed debt exchange as a way to circumvent U.S. court rulings.

People walk in Buenos Aires' financial district, August 14, 2014. REUTERS/Marcos Brindicci

Argentina defaulted in July after the New York court that governs some of its original bond contracts blocked a coupon payment. The proposed swap into local law bonds is Argentina’s way of trying to get around the U.S. court orders.

If the swap fails and Argentina stays in default, it would be another blow to Latin America’s No. 3 economy as it contends with high inflation and recession.

“There is obviously willingness among many creditors, or bondholders, to participate in the sovereign debt payment law, in order to get the money that is owed to them,” cabinet chief Jorge Capitanich told reporters.

Argentina’s debt saga started with its 2002 default on about $100 billion in bonds. Most holders got less than 30 cents on the dollar in two subsequent restructurings, while a small group of hedge funds went to court for full repayment.

The debt swap bill, passed by the Senate on Thursday and expected to become law later this month, would allow holders of $29 billion in bonds under foreign law to swap them for paper governed by Argentine law.

This would defy the court ruling that says Argentina is prohibited from paying holders of its restructured bonds without also paying the hedge funds $1.3 billion plus interest.

A mediator appointed by the U.S. court said “unresolved” issues still separated the two sides and were preventing a settlement.

Daniel Pollack, a New York lawyer accused by the Argentine government of being “prejudicial” toward the Republic, said he would continue seeking to mediate a solution.

Argentina steadfastly refuses to pay the holdouts in full, saying that to do so would open the country to a raft of new lawsuits.

In need of financing to develop its vast Patagonian shale oil and gas fields, Argentina will be unable to issue fresh international debt until the lawsuits are settled.

Capitanich’s optimistic take on the debt swap differed from that of investors familiar with talks held in New York this week between Finance Secretary Pablo Lopez and fund managers.

“They probably wanted to know whether we would participate in a swap with local law (bonds), but they didn’t ask the question directly. I pre-empted it by saying we wouldn’t,” one fund manager who met with Lopez told Thomson Reuters’ IFR.

Implementation of the sovereign payment law faces a number of hurdles, as any third party assisting the country in carrying out the exchange risks being held in contempt of court.

The proposal would offer creditors a choice of bonds under Argentine or French law. France waded in on Argentina’s side during its legal battle.

Reporting by Jorge Otaola and Alejandro Lifschitz in Buenos Aires and IFR's Davide Scigliuzzo in New York; Editing by Dan Grebler

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