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Argentine GDP Warrants Climb to 1-Month High on Growth Outlook

Source: Bloomberg
By: Drew Bensen
06.15.2010

Argentine warrants linked to gross domestic product rose to the highest price in a month as investors bet that growth in South America’s second-biggest economy will trigger payments.

The dollar-denominated GDP warrants rose 0.1 cent on the dollar to 7.35 cents at 4:34 p.m. New York time, the highest since May 18.

“Any way you look at them, the warrants remain below their theoretical value,” said Sabrina Corujo, an analyst with online brokerage Portfolio Personal SA in Buenos Aires. “With growth expected to be around 5 percent, they remain interesting.”

Warrants and bonds climbed as the nation’s offer to restructure $18.3 billion worth of defaulted bonds held out of a 2005 settlement nears its June 22 deadline.

Argentina’s restructuring offer includes the warrants, as well as dollar bonds due in 2033 and bonds due in 2017 to pay past-due interest. The offer doesn’t include past-due payments on the GDP warrants.

The warrants help determine the value of the offer, in net present terms, which is worth about 43 cents on the dollar for institutional investors, according to RBS Securities Inc.

Argentine Finance Secretary Hernan Lorenzino met with government and bank officials this week in Japan, where creditors have turned in 72 percent of remaining defaulted samurai bonds and 82 percent of euro-yen notes held out of the 2005 settlement, the Economy Ministry said in a statement today. That brings total participation by creditors holding Japanese- law Argentina bonds to 99 percent, the ministry said.

Lorenzino later this week will meet with creditors in Italy, where the government estimates individual investors may hold as much as $4 billion in defaulted notes.

Participation Rate

As of June 11, creditors tendered about 56 percent of the outstanding bonds, Economy Ministry spokesman Sergio Poggi said yesterday. Boudou has said he expects participation to reach 60 percent.

The annual payment on the GDP warrants, which were distributed in 2005 to win approval for the government’s first debt restructuring, is triggered when economic growth is above 3 percent and the inflation-adjusted value of the country’s GDP is above the government’s base-case scenario laid out in the warrants.

Holders of the warrants will receive no payment this year because the government said the economy expanded 0.9 percent in 2009, less than the growth threshold that triggers payments on the securities. Argentina made a warrant payment of $3.11 on Dec. 15 after the economy grew 6.8 percent in 2008.

Market Return

President Cristina Fernandez de Kirchner opened the debt swap May 3, five years after her husband and predecessor, Nestor Kirchner, offered creditors about 30 cents on the dollar, the harshest restructuring terms since at least World War II, according to Arturo Porzecanski, an international finance professor at American University in Washington.

Argentina defaulted on $95 billion in 2001 and a successful restructuring will help the country regain access to international credit markets. It will also lower borrowing costs for provinces and companies that seek to sell debt.

Argentina will likely move to lift capital controls following the debt swap, Buenos Aires Stock Exchange President Adelmo Gabbi said in an interview in his office today.

“We believe that after the swap, the government will undertake policies to attract foreign capital and the first step should be to lift all barriers,” Gabbi, 66, said in an interview in his Buenos Aires office today. “It’s indispensable to clear the road so that international investors begin to look at Argentina again.”

Argentine real estate developer IRSA Inversiones y Representaciones SA said in a filing with the Buenos Aires Stock Exchange yesterday that it is extending an offer to sell $250 million in 10-year bonds until June 24. The offer had been scheduled to end yesterday.

The government already extended its debt restructuring offer once, from its original June 7 deadline, in a bid to increase participation. Boudou and Lorenzino have not mentioned a second swap extension, Poggi said.

The peso was little changed at 3.9248 per dollar, from 3.9262 yesterday.

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