Friday 6th March 2015
NEWS TICKER, FRIDAY, MARCH 6TH 2015: —BNY Mellon has been appointed by Accor, the hotel operator based in France, as depositary bank for its sponsored American depositary receipt (ADR) program. Accor previously traded in the US as an unsponsored DR. Each sponsored ADR represents one-fifth of an ordinary share and trades on the OTC Markets under the symbol ‘ACCYY.’ Accor’s ordinary shares trade on Euronext Paris under the code ‘AC’— The US Inland Revenue Service (IRS) says the FATCA IDES User Guide has been updated for March 2015 and includes user enhancements and additional instructions. Copies can be downloaded from the IRS websiteimage003.pngThe Federal Reserve Bank of New York has reported gross purchases from February 26th through March 4th of $4,737m worth of agency MBS transactionsimage003.png More than 100 members of European Parliament (MEPs) have signed an open letter to the European Union’s Telecoms Council, urging it to adopt a more relaxed stance towards roaming charges. The Council is looking to extend the “phasing out” of charges until mid-2018, more than two and a half years later than initially laid out in the Roaming III regulation established in 2012. Roaming III, one of Neelie Kroes’ flagship motions in the move towards a single digital market, had previously required the abolishment of all roaming fees by the end of this year. “The Council stance sets up a new pricing mechanism, which will make it much cheaper to use your mobile phone when travelling abroad in the EU,” it said. “Within certain limits to be determined, consumers could make and receive calls, send SMSs and use data services without paying anything extra on top of the domestic fee.” It also suggests limitations under which operators will be able to levy charges against roamers. “Without a strong Telecoms Single Market, the much needed Digital Single Market cannot flourish,” they said, in an open letter to the Council of the European Union. “The European Parliament urged an end to roaming charges by the end of this year (2015). We consider proposed delays by three years (2018), or a suggestion to allow for 5MB without charges per day, to lack ambition. Such outcomes will undoubtedly seriously disappoint citizens. The gap between ending roaming charges, and 5MB per day is immeasurably large.” The open letter to the Telecoms Council concluded with a plea to put an end to roaming charges and clearly define net neutrality, stressing its significance for the future of Europe’s digital economies—Danish dedicated wind company Vestas has placed a seven year €500m eurobond with an interest rate of 2.75%, which the firm says will broaden the firm’s funding structure. The bonds, which will be listed in Luxembourg, will be repaid on March 11th 2022. According to Vestas CFO Marika Fredriksson, this is the first time a "green bond" had been issued by a dedicated wind company—An Taoiseach, Enda Kenny TD; the Minister for Jobs, Enterprise and Innovation, and Clive Bellows, Country Head Ireland at Northern Trust say the bank will expand its operations in Limerick by creating up to 300 new jobs over the next three years. The expansion is supported by the Department of Jobs through IDA Ireland —Despite reduced market volatility in February, total traded volume on the Tradeweb European-listed ETF platform amounted to €7.7bn in the month. This was the platform’s third best performance since launch, only beaten by last October’s €7.9bn and January’s record-breaking €10.7bn volume. According to the firm, there was a clear buying trend across all asset classes on the platform, with “buys” outstripping “sells” by 26 percentage points as a proportion of the overall traded volume. “Buy” requests for equity-based ETFs climbed to 42%, while “sell” requests fell 8 percentage points to 31 per cent compared to the past 12 months. Three of February’s ten most heavily traded ETFs invest in fixed income, offering exposure to government debt and USD-denominated high yield bonds—Global business advisory firm FTI Consulting, Inc says Mark Hunt has joined as senior managing director in the firm’s Forensic & Litigation Consulting practice. Mark will be based in London. As a Senior Forensic Partner with over thirty years’ experience, Mark specialises in financial and regulatory investigations, audit and accounting negligence, expert determinations and accounting disputes. His work has included a number of complex international disputes for both claimants and defendants, as well as acting as an expert on issues relating to complex financial instruments. Mark joins FTI Consulting from BDO, where he led their Financial Services practice, which included conducting FCA/PRA Skilled Persons Reviews. Prior to joining BDO in 2007, Mark was a Partner at KPMG, and he is also a Fellow of the Institute of Chartered Accountants in England and Wales. In his new role, Mark will join the EMEA Financial Advisory Services leadership group, working with Jeannette Lichner, Stephen Kingsley, Andrew Durant and Nick Hourigan to continue building FTI Consulting’s practice— The Straits Times Index (STI) ended +22.24 points higher or +0.66% to 3417.51, taking the year-to-date performance to +1.56%. The FTSE ST Mid Cap Index gained +0.21% while the FTSE ST Small Cap Index declined -0.38%. The top active stocks were SingTel (+1.70%), DBS (+0.98%), Noble (+4.98%), Keppel Land (-0.22%) and Genting Singapore (-2.63). The outperforming sectors today were represented by the FTSE ST Telecommunications Index (+1.52%). The two biggest stocks of the FTSE ST Telecommunications Index are SingTel (+1.70%) and StarHub (unchanged). The underperforming sector was the FTSE ST Health Care Index, which declined -0.55% with Raffles Medical Group’s share price declining -0.51% and Biosensors International Group’s share price declining -0.77%. The three most active Exchange Traded Funds (ETFs) by value today were the STI ETF (+0.59%), iShares USD Asia HY Bond ETF (-0.85%), SPDR Gold Shares (-0.42%). The three most active Real Estate Investment Trusts (REITs) by value were CapitaMall Trust (-0.94%), Ascendas REIT (-0.40%), CapitaCom Trust (+0.28%). The most active index warrants by value today were HSI25000MBeCW150429 (-4.12%), HSI24200MBePW150429 (+0.60%), HSI24400MBeCW150429 (-2.99%). The most active stock warrants by value today were DBS MB eCW150420 (+8.65%), OCBC Bk MBeCW150803 (unchanged), UOB MB eCW150701 (+2.10%).

Argentina - Ten years on from the default

Friday, 15 June 2012
Argentina - Ten years on from the default In the hubble and bubble in the press around Greece and Spain, some commentators have lately drawn comparisons with Argentina, suggesting that is the way forward. Humbly, we suggest they might be wide of the mark. Greece will exit from a currency union; Argentina has its own currency and can set its own interest rates. In other ways too, the countries are way different and drawing comparisons between them is not helpful to Greece or Greek bondholders. Vanja Dragomanovich explains the long term impact on Argentina of its latest default (back in 2001) and what, if any, lessons might be drawn from that debacle and the long term impact on the Argentine financial markets. http://www.ftseglobalmarkets.com/

In the hubble and bubble in the press around Greece and Spain, some commentators have lately drawn comparisons with Argentina, suggesting that is the way forward. Humbly, we suggest they might be wide of the mark. Greece will exit from a currency union; Argentina has its own currency and can set its own interest rates. In other ways too, the countries are way different and drawing comparisons between them is not helpful to Greece or Greek bondholders. Vanja Dragomanovich explains the long term impact on Argentina of its latest default (back in 2001) and what, if any, lessons might be drawn from that debacle and the long term impact on the Argentine financial markets.

In the hubble and bubble in the press around Greece and Spain, some commentators have lately drawn comparisons with Argentina, suggesting that is the way forward. Humbly, we suggest they might be wide of the mark. Greece will exit from a currency union; Argentina has its own currency and can set its own interest rates. In other ways too, the countries are way different and drawing comparisons between them is not helpful to Greece or Greek bondholders. Vanja Dragomanovich explains the long term impact on Argentina of its latest default (back in 2001) and what, if any, lessons might be drawn from that debacle and the long term impact on the Argentine financial markets.

As Greece edges closer to political and economic immolation, market watchers have been in a flurry, casting around for examples of how a country could survive leaving the eurozone and a hard default. One example being touted around the markets is Argentina, which went through a spectacular default ten years ago but managed to follow it up with a decade of fast growth, a boom in commodity exports and a golden period in banking. Argentina’s finances are in relatively good shape. At $185bn, the country’s total debt load last year equated to just 41.3% of GDP. That’s better than both Spain, whose debt-to-GDP ratio stands at 70%, and Italy, which is saddled with an ­eye-popping 120% burden. Moreover, with GDP growth at 4% and funds available from central bank reserves, pension funds and YPF’s coffers, Argentina has ample cash.



Argentina’s expansion was fuelled by two things: liberal policies and a sharp rise in the prices of com­modities. Argentina is one of the world’s largest exporters of wine, soy, corn and wheat and China is its enthusiastic buyer. And while Greece may try to emulate the policies component of the Argentina story, unless the Chinese take to drinking retsina and cooking with olive oil it will have difficulty replicating the Latin American country’s recovery.

Argentina has also come good on almost 93% of its initial debt obligations, but to this day has not been able to return to international financial markets. In large part this is because of an ongoing dispute with two hedge funds. The bulk of the outstanding amount is owed to the Paris Club, a total of $6.4bn. “Technically, Argentina is not locked out of international markets the way it was in 2001 and 2002 when nobody would lend them money. In theory they could try to raise money but in practice they can’t go back because they would risk a seizure of assets while the [legal] cases are pending,” explains Michael Henderson, emerg­ing markets economist at Capital Economics in London

In 2001 the country defaulted on $100bn of its sovereign debt. Four years later, Argentina’s president at the time, Nestor Kirchner, offered to swap the defaulted bonds for new ones worth 70% less, in a similar deal to what Greece is hoping for. Around three quarters of the bondholders agreed. The process was repeated in 2010 by current president Cristina Fernandez de Kirchner who said at the time that this was the final deal being offered to remaining bondholders.

Two distressed-debt hedge funds opted for litigation in US courts while a group of Italian bondholders asked for an arbitration award at the World Bank’s International Centre for Settlement of Investment Disputes.

The US courts are still pondering the issue. Initially the courts ruled that NML Capital Fund, one of the funds suing Argentina, was entitled to a repayment of $1.6bn, including the payment of interest, only for this to be overruled this spring. Now the remaining debt holders are collectively appealing to the US Court of Appeal with the case due to be heard in mid-June.

While this is going on, not only is Argentina not in a position to issue bonds, it has also little hope  of raising loans from major international institutions as the United States is actively blocking the country’s loan applications on the grounds that it is a recalcitrant debtor. In September last year the US, which holds a 30% voting share in Inter-American Development Bank, voted against a $230m loan to the country.

 Of the remaining debt, $6.4 billion is still owed to the Paris Club of official creditors and Argentina has yet to reach agreement with the Club on how to reschedule the repayments. “For that Argentina would need to get the approval from the IMF and that is not likely to happen as they have a strained relationship,” says Henderson. He argues that that would mean that Argentina would have to let the IMF carry out a health check on its economy and in the process the government would have to admit that the country’s official statistics have been doctored. Just how far the country’s figures have been massaged was made clear by Carlos Maria Regunaga, a former adviser-in-chief to the Argentina’s secretary of commerce and a director at Menas Argentina. Regunaga cites the fact that although consumer price inflation in 2011 was around 22%, “the government denies this and insists that inflation is only 9.5%.”

So where does this all leave Argentina? Over the years it has been turning increasingly inwards for solutions. The government’s tactical arsenal has included printing money, dipping into central bank reserves, seizing the assets of pension funds, controlling imports and exports to tweak its trade balance and privatising pension funds. Moreover, both Kirchner presidents have been fuelling growth by heavy public spending. Despite some questionable actions, the economy has grown. Again, according to official statistics, economic growth came in at over 8% in 2010 and 9% last year. 

Even so, growth has come at a price and the high public expenditure is now a major problem, says Regunaga.  “Historically, the public sector represented an average of 30% of GDP. The Kirchners have increased it to a level of 45% of GDP,” leading to a financial shortage in the public sector, he says. In 2011, for instance, 70% of public sector spending has been financed by printing more pesos and reaching into central bank reserves.

Government raids

The government has been raiding what there is to raid in the country. In April it said it would borrow almost $3bn from the state-run bank Banco de La Nación to cover its funding needs, $2.36bn in 12 instalments and the rest as a lump sum. Argentina also regularly issues bonds directly to pension fund agency Anses, which operates the bulk of Argentina’s pension money after the government nationalised all private pension funds in 2008.“There are no signs that the government will go back any time soon on the nationalisation of pension funds. Why would it?” says a Buenos Aires banker who did not want to be named. “The move has achieved two major objectives: not only did it give the government access to a large sum of money but also major stakes in top companies and seats on their boards of directors,” the banker adds.

This and other political decisions such as strict exchange controls, import and export restrictions and the recent nationalisation of oil company YPF, formerly majority owned by Spanish oil producer Repsol has alienated Argentina from foreign mutual funds and private equity investors. Julio Lastres, managing director at Darby Private Equity, part of Franklin Templeton Investments, explains: “In order to make an investment you have to see how the local capital market has been developing, to see if you can fund the company in the local market and exit through an IPO. And then you typically have the growth of local pension funds that fuel the growth of the local market. But what we hear in Argentina makes it challenging to take a long term view and invest there. You have better places to invest in Latin America.”

Argentina has some presence in the international financial markets through GDP warrants, which were issued as part of two debt restructuring instalments (one in 2005, the other in 2010) to sweeten the deal for bond holders caught out by the country’s default on $100bn of debt in 2001.

The warrants are structured in such a way that the government will pay investors as long as the GDP grows by 3.3% per year, based on the annual GDP. Although initially there was little appetite for these GDP warrants in the open market, as the country’s economy grew so did niche investors’ interest. “We had very good volumes on Argentina’s GDP warrants, hedge funds in particular like them,” says Gabriel Sterne, director at frontier markets investment banking boutique Exotix.

This is also about to change as falling commodity prices and heavy government spending are catching up with Argentina’s economy. While the government predicts that growth this year will be 6% Henderson at Capital Economics forecast that the number will be closer to 2.5%. “Our belief is that Argentina is headed for a recession, most likely next year,” says Henderson, particularly if the global economic backdrop deteriorates over the next year, which could possibly lead to a more disorderly adjustment. With Argentine state accounts under pressure, it would be handy not to have to pay warrant holders. But that might do no favours to Argentina’s already rocky investment reputation. For now, warrant payments are hanging in the balance. Ultimately though, while Argentina has some mounting troubles, it is a story of rich resource management and a deep economy; very different from that of Greece. 

Greece’s economic recovery may also not be as certain as in Argentina’s case as it cannot devalue and does not have such a strong export market to boost its coffers. So if Greece is looking for a blueprint for the exit from the euro and a default it might be better looking somewhere other than Argentina. Or perhaps better yet, try and avoid the default in the first place. n

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