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Buenos Aires’ old bond enemy plays hardball by default
(Bloomberg) – Axel Kicillof appreciated the role he played in Argentina’s government years ago: the brash left-wing economy minister who clashed at every opportunity with foreign investors. They hated him and he loved it. Today, Kicillof is once again locked in a deadly battle with financiers in New York and London. This time it was as governor of Buenos Aires, who, along with nearly a dozen other provinces, called for debt restructuring talks last year as the federal government began its negotiations. own negotiations with creditors. But unlike the others, Buenos Aires has not yet emerged from the fault. In fact, 10 months after Kicillof halted bond payments worth $ 7.1 billion, almost no progress has been made in the talks, with bonds now languishing at just 35 cents on the dollar. in the secondary markets and not a cent of interest income flowing in their direction. , creditors are more and more tired of the withdrawal and disinterest of Kicillof employees. Last week, funds from the Buenos Aires Ad Hoc Bondholder Group sued the province in U.S. court for principal and unpaid interest, which analysts said could help jumpstart the process by forcing the province to play a more active role in the negotiations. But, they warn, there is another dynamic at play that threatens to only embolden Kicillof to further radicalize his harsh approach. The federal government – under the growing influence of Vice President Cristina Fernandez de Kirchner, Kicillof’s mentor – is pushing for concessions to refinance a failed $ 45 billion program with the International Monetary Fund. Defaulting Buenos Aires bonds, which now trade at less than 40 cents on the dollar, reflect how badly the country’s economy and finances have been battered by the pandemic and lack of credibility. “For Kicillof, it’s political,” said Diego Ferro, founder of M2M Capital in New York, a seasoned investor who does not hold provincial bonds. “Which means unless he gets a deal that’s consistent with what Argentina got, it will reflect badly on him.” And as the August primaries and October midterm elections approach, politics will play an increasingly important role in shaping all aspects of politics. Reaching a deal with the IMF or provincial bond holders is not a priority, especially in a pandemic. Buenos Aires has pushed back the deadline on its debt proposal no less than 13 times. But last week, the province released details of a new fund presented to New York hedge fund GoldenTree Asset Management, one of its biggest creditors. It was quickly rejected – as was the counter-offer. The next day, the group of creditors, including GoldenTree, filed two lawsuits against the province in U.S. District Court in New York City seeking $ 366 million in interest and principal overdue. pressure with the litigation now ongoing, ”said Carlos de Sousa, emerging markets portfolio manager at Vontobel Asset Management in Zurich. “Kicillof is rather ideological and close to Cristina. And so his lack of cooperation with creditors until recently. The province’s bonds due 2027 fell 0.3 cents to 37.7 cents on the dollar by 4:50 p.m. in Buenos Aires. Those who have observed Kicillof as Minister of the Economy between 2013-2015 under President Fernandez de Kirchner know that he does not quickly surrender into high profile conflicts with creditors. At the time, he fought Paul Singer’s Elliott Management and other resistance fighters, insisting Argentina couldn’t comply with a ruling in their favor and ultimately chose to default again with the blessing. Of the president. Minister Pablo Lopez, he is very involved.Read more: Province of Buenos Aires assesses next steps after lawsuit against creditors Lawsuits are only a strategy to put pressure on the government and the province will have another 60 days to respond, Lopez said in an interview last week. While Kicillof, 49, does not directly participate in conversations with bondholders, Lopez frequently discusses the debt restructuring process with him, he said. “He’s focused and interested,” Lopez said. “Debt negotiation is determined by the provincial government.” The province is larger than many countries and accounts for half of regional government debt. Home to nearly 18 million people and accounting for two-fifths of Argentina’s GDP, it is a critical political battleground in any election.Last week at an event Fernandez de Kirchner, who chose Alberto Fernandez as presidential candidate in 2019, has insulted the IMF and the conditions sought to renegotiate the biggest credit deal ever with the Washington-based lender. “We can’t pay because we don’t have the money,” she says, Kicillof nodding in the background. As they spoke, Economy Minister Martin Guzman wrapped up a trip to Washington after meeting with IMF officials. After Fernandez came to power in December 2019, the province of Buenos Aires was the first to default on its debt in May. A few days later, the federal government followed suit, along with several other provinces over the following months. The government and eight provinces have since settled with creditors. Transactions ranged from around 55 cents on the dollar for the government, while many regional authorities accepted much smaller discounts, between 83.4 and 96.3 cents, given a 10% output yield. While a few smaller provinces also remain in talks, Buenos Aires, which has offered to pay around 65 cents, is the latest big refusal.As economy minister, Kicillof negotiated a deal with Spain’s Repsol SA after the government seized its stake in oil producer YPF SA. in 2012, agreeing to compensate the company with bonds. It also has an agreement with the Paris Club of creditors. These events give some investors hope that he will eventually reach a deal. Yet his rhetoric remains combative. Speaking at an event on Friday, Kicillof called investors “unsupported and intransigent”. “The court’s claims will not lead to solutions to the fundamental problems,” he said. “We remain open to dialogue to reach an agreement that is convenient for creditors and the province can pay.” Even after the lawsuit is filed, Kicillof has little financial incentive to quickly reach a settlement or offer concessions to creditors. Realistically, the province has no chance of tapping into international markets for new funding, so it has little to lose by delaying talks. And if a court ruling goes against it, lawyers in the province could appeal several times, which could prolong the saga until the next gubernatorial election in 2023. “I don’t see a situation where Kicillof accepts a deal that better than what the Sovereign has accepted, ”Ferro said. (Updates with the bond movement in the 11th paragraph.) 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