Argentina soars ahead of new debt restructuring proposal; Brazilian corporates trade flat to higher

By Reshmi Basu and Paul A. Harris

New York, June 1 - Argentina's bonds soared in trading Tuesday ahead of the government's unveiling of its debt-restructuring proposal.

But generally emerging market debt slipped during Tuesday's session.

Even before the announcement - which came after most trading finished for the day - Argentine debt was 100 to 200 basis points tighter on rumors alone that the government would make some of the overdue interest payments.

In a press conference Tuesday, economy minister Roberto Lavagna announced the new proposal to restructure the $99.4 billion of debt that the country defaulted on in 2001.

"The proposal is made with assumptions that do not put in risk the future of Argentina," said Lavagna at the news conference.

Lavagna also said the amount of interest to be paid would depend on the acceptance rate by bondholders.

If more than 70% of holders accept the offer, the government would pay past-due interest on the bonds through the end of this month, totaling $22.5 billion.

If fewer than 70% accept the offer, the government would pay past-due interest through Dec. 31, 2003, totaling $18.2 billion.

Lavagna added that past-due interest would be paid over a period as long as 42 years.

Also, the government said it would issue $38.5 billion of new bonds.

"Obviously, this is our final offer," Lavagna said at the news conference in Buenos Aires.

In anticipation of the announcement Argentine bonds soared. The benchmark 7% bond due Dec. 19, 2008 closed at 30.75 bid, 31.25 offered, up about 1.75 on the news.

Argentina outperformed the JP Morgan EMBI+ during Tuesday's session. The Argentine component of the EMBI was up 3.9%. Its spread to Treasuries tightened 190 basis points to 4,775 basis points.

Meanwhile the JP Morgan EMBI+ was down 0.02%.

Investors had been incensed by previous proposals when the Argentine government said it intended to pay 25 cents per dollar of face value at an International Monetary Fund meeting in September. The offer incited dozens of lawsuits.

"It is much better than the one presented almost a year ago in Dubai," Alberto Bernal, Latin American economist for research firm IDEAglobal, told Prospect News.

"It offers higher interest payments on the bonds, which will have an important effect on the market value of debt.

"The second part which is very relevant is that it assumes the past-due interest. That was something that all investors were expecting to see," he said.

"It basically goes in line with the tradition of debt restructuring, that you always comply with your payment of interest no matter what.

"It means that everything else equal, the participation of investors on this deal will be higher than any participation that would have been achieved under the Dubai terms," Bernal added.

An emerging markets sell-side official said late Tuesday: "It seems that this speech is more locally/politically oriented, rather than investor-oriented.

"The main difference versus before is that now [Argentina is] saying they will recognize past-due interest up to December 2003."

While the new deal may be a little less insulting, bondholders will still face a loss.

"I think it will probably be taken as a positive step in the negotiating process, but by no means the final step," said an emerging market analyst.

"But the fact that Argentina is improving the terms of its offer will be taken as a sign of good faith, which will be an important factor as the IMF reviews its Argentina program."

Brazilian corporates trade flat

Elsewhere in trading Tuesday Brazilian steelmaker Companhia Siderurgica Nacional (CSN) bonds due 2013 firmed by 2½ points to 86¼ bid, 87¼ offered from levels of 84 bid, 85½ offered on May 27.

Also up was Brazilian mining company Companhia Vale do Rio Doce. Its bond due 2034 was up by one point to 85¾ bid, 86¾ offered from 84¾ bid, 85¾ offered on May 27.

Meanwhile, state-oil company Petrobras' bond due 2014 was unchanged at 99¼ bid, 100¼ offered.

Also Brazil's second biggest paper and pulp company Votorantim Celulose e Papel saw its bond due 2014 was unchanged in Tuesday trading at 91½ bid, 93½ offered reported on May 27.

And the world's fifth largest beverage producer AmBev's bond due 2013 was unchanged at 103¼ bid, 104¾ offered.

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