201 12-jan-2005 10:39
(Gilgamesh - Milano)
By Michael Casey Of DOW JONES NEWSWIRES BUENOS AIRES (Dow Jones)--With days before the launch of Argentina''s record-breaking $103 billion debt restructuring, the leader of the biggest group representing holders of the country''s defaulted debt is defiantly predicting that it will fail. In an interview, Hans Humes, who is co-chairman of steering committee of the Global Committee of Argentine Bondholders, dismissed recent analysts'' predictions that Argentina''s much-criticized debt exchange offering will achieve acceptance rates of between 70% and 80%. "Even if you take 70% (as the number), once you take out the Germans, the Swiss, all the Italians and the Japanese, you can''t get there," Humes said. GCAB claims to represent holdings of some $38 billion in defaulted Argentine bonds, or just under 50% of the $81.8 billion in face value defaulted debt that will eligible for the exchange when it is launched on Friday. Its steering committee has repeatedly rejected the offering, which imposes an unprecedented 70% estimated loss on bondholders, and claims that the vast majority of its members will heed its advice. Of the total outstanding face value, some $15 billion is in the hands of an estimated 450,000 retail Italian investors. The rest is spread among Swiss, German and other European investors - most of them also individuals - as well as Japanese holders of defaulted Argentine Samurai bonds and a smaller number of mostly U.S.-based institutional investors with large holdings. Humes claims that almost all the Italians will follow GCAB''s advice and reject the offering as will all Swiss bondholders, who account for some $9 billion, and Japanese bondholders, who have between $2 billion and $3 billion. Meanwhile, at least half the German bondholders will do the same, he claimed, removing another $2 billion to $3 billion from the total acceptance level. Humes conceded that a few U.S. institutions that bought Argentine bonds at low post-default prices might "flip" their holdings, betting that the more liquid new, restructured bonds will outperform the defaulted bonds, which are currently priced at or above the valuation of the offering. But he disputed the logic of such a strategy and maintained that the vast majority of these investors, many of whom belong to the $10 billion-strong Argentine Bondholders Committee, a founding member of GCAB, will also reject the offering. "If you''re a rational actor, you don''t take this deal," Humes said. Similarly, he dismissed talk that many Italian bondholders would ignore the advice of GCAB''s other co-chairman, Nicola Stock, whose Task Force Argentina represents most of the bondholders in that country. He said analysts are overblowing the idea thatItalian custodial banks, who represent individual bondholders, have been buying the bonds from their clients with the intention of tendering them in the government''s offering. "Maybe the Argentines have directed a few to do buybacks from the Italians (on their behalf), but the most you would get would be one or two agents," Humes said. "Even there, Stock''s got the proxies (voting rights) from all the banks." He said analysts'' reports such as those produced by Citigroup and CSFB, in which they cited interviews with their own institutional clients to come up with projections of more than 70% participation rates, are flawed. They had spoken to pension fund and mutual funds with very small holdings in Argentina, he said, and not the hedge funds and distressed debt investors who now account for much of the outstanding bonds in institutional hands. "I don''t accept the sell-side research. Most of them haven''t been in the market," Humes said. "But one of the programs in the official sector is reading sell-side research," he added, referring to the International Monetary Fund and the U.S. Treasury, institutions to which many market participants will ultimately defer to for an assessment of how well the Argentine debt restructuring has gone. "We can''t be too far out of the mainstream of research, but I think they have more influence than they should have." Talk of a 70%-75% acceptance threshold level has strengthened in recent weeks as local Argentine papers have cited surveys supposedly conducted by Argentina''s underwriters finding approval rates above 75%. Meanwhile, various Argentine economists have cited ranges of 70% to 75%, as have some Wall Street analysts. Meanwhile, comments such as those of Angello Castelli, an Italian lawyer who has filed nearly 1,500 legal actions against Argentina and who now claims that the offering is "objectively the best solution for Italians," have further fueled this speculation. Castelli says Italians should take their 30 cents-on-the-dollar from the government and then seek to sue Italian banks for having sold them the overvalued bonds in the first place. Compared to the talk of spectacular failure a year ago - when 50% acceptance levels were commonly cited - these higher numbers suggest Argentine President Nestor Kirchner is going to walk away with a major victory when the restructuring ends six weeks from Friday. And yet Humes argues that even if his predictions were not met, and a 70% rate were achieved, this shouldn''t constitute success. "The only number that has been given on what the official sector will accept is 80%," Humes said, in reference to the widely cited - but never officially confirmed - view that the IMF will set this level of acceptance as thr?