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Bondholders’ Old Foe in Buenos Aires Plays Default Hardball

(Bloomberg) — Axel Kicillof relished the role he played in the Argentine 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 bruising battle with financiers in New York and London. This time it’s as governor of Buenos Aires, which, along with nearly a dozen other provinces, called for debt restructuring talks last year as the federal government began negotiations of its own with creditors. But unlike the others, Buenos Aires has yet to emerge from default. Ten months after Kicillof halted payments on $7.1 billion worth of bonds, barely any progress has been made in talks. With the bonds now languishing at just 35 cents on the dollar in secondary markets and not a penny of interest income flowing their way, creditors are growing tired of the stalling and the disinterest displayed by Kicillof’s aides. Last week, the Buenos Aires Ad Hoc Bondholder Group funds sued the province in U.S. court for unpaid principal and interest. This gambit, analysts say, may help jump-start the process by forcing the area to take a more active role in negotiations. But, they warn, there’s another dynamic at play that threatens only to embolden Kicillof to radicalize his hard-line approach further. Under the growing influence of Vice President Cristina Fernandez de Kirchner, a mentor to Kicillof, the federal government is aggressively pushing for concessions to refinance a $45 billion failed program with the International Monetary Fund. The government’s newly restructured sovereign bonds, like th, defaulted Buenos Aire’s bonds, now trading below 40 cents on the dollar, a reflection of how badly the pandemic and lack of credibility have battered the country’s economy and finances. “For Kicillof, this is political,” said Diego Ferro, founder of M2M Capital in New York, a veteran debt investor who doesn’t hold bonds of the province. “Which means that unless he gets a deal consistent with what Argentina got, it will reflect poorly on him.” And as August primaries and October mid-term elections get closer, politics will play an ever-larger role in shaping all policy aspects. Cutting a deal with the IMF or provincial bondholders isn’t a priority, especially during a pandemic. Buenos Aires has extended the deadline on its debt proposal no fewer than 13 times. But last week, the province published details of a new one shown to New York-based hedge fund GoldenTree Asset Management, one of its largest creditors. It was swiftly rejected — as was the counteroffer. The next day, the creditor group, including GoldenTree, submitted two legal claims against the province in the U.S District Court of New York,k seeking $366 million in unpaid interest and principal. “There’s more pressure with the litigation now ongoing,” said Carlos de Sousa, an emerging market portfolio manager at Vontobel Asset Management in Zurich. “Kicillof is quite ideologically driven and close to Cristina. And thus 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 at 4:50 p.m. in Buenos Aires. Those who observed Kicillof as Economy Minister between 2013-2015 under then-president Fernandez de Kirchner know that he doesn’t quickly surrender in high-profile conflicts with creditors. Back then, he battled Paul Singer’s Elliott Management and other holdouts, insisting that Argentina couldn’t comply with a ruling in their favor and eventually opted to default again with the president’s blessing. And while he’s delegated negotiations this time around as governor to his provincial Economy Minister Pablo Lopez, he’s very much involved. Read More: Buenos Aires Province Weighs Next Steps After Creditor LawsuitThe legal claims are only a strategy to pressure the government, and the province will still have 60 days to respond, Lopez said in an interview last week. While Kicillof, 49, doesn’t directly participate in conversations with bondholders, Lopez frequently discusses the debt restructuring process with him, he said. “He is focused and interested,” Lopez said. “The provincial government determines the debt negotiation.” The province is more significant than many countries and represents half of the debt from regional governments.

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