Cablegate: Italy: Argentina Bondholders Digging In

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C O N F I D E N T I A L ROME 001308

SIPDIS

FOR EEB/IFD/OIA MARK CULLINANE

E.O. 12958: DECL: 11/25/2019
TAGS: EFIN EINV AR IT

SUBJECT: ITALY: ARGENTINA BONDHOLDERS DIGGING IN

Classified By: Econ Mincouns George White for reasons 1.4 (b) and (d)

1. Confidential - - Entire Text.

2. Summary - Italian bondholders of defaulted Argentine debt are unlikely to take up the most recent GOA buy-out offer and intend to pursue ongoing arbitration. A bondholders' group says its members' interests vary greatly from those of US institutional investors that seem interested in arriving at a settlement with the GOA. End Summary.

3. Econoff met on November 25 with Nicola Stock, the director of Task Force Argentina (TFA), an NGO representing Italian retail investors holding some USD 4.5 billion in defaulted Argentine bonds. Post sought a meeting with the Italian banking association (ABI) after being contacted by a US institutional investor seeking an introduction to ABI. The US firm wanted to persuade ABI to encourage its bank clients to consider accepting the recent GOA offer to settle outstanding claims through a new bond issue exchanged at a significant discount from the original face value. ABI instead arranged for econoffs to meet with Stock.

4. Stock outlined a years-long struggle with successive Argentine governments to recover principal and interest owed some 180,000 Italian investors (mainly small companies and individuals). His organization works with similar groupings in Germany, Switzerland and Japan. Stock considers the current Argentine offer inadequate and has so advised the investors he represents. He denied Argentine government assertions in the press that the GOA had negotiated with, or even notified, him and his members of the current buy-out offer. Stock says he knows of the offer by what the press has reported. He said the GOA has not yet registered any such offer with Italy's SEC equivalent, CONSOB, alleging further that the GOA had failed to pay previous registration fees due CONSOB.

5. Stock said he is aware that Barclays PLC, Citibank and Deutschebank are vying to underwrite the new Argentine government issue, and at the same time have been buying old bonds in the open market. Between underwriting fees from the GOA and capital gains on the existing issue (the bonds have risen from around 9 cents on the dollar to over 30 in recent months), the banks stand to make a healthy profit. TFA members would still lose big under the proposed scheme to exchange the existing bonds for a lower face amount (65%) of a new GDP-indexed Argentine issue, says Stock.

6. TFA's pending case against the GOA before ICSID suffered a temporary setback recently when the panel judge suffered a heart attack and had to remove himself from the proceedings. A victory before an ICSID tribunal will not settle the matter, however. Stock says Argentina has lost dozens of investor cases in ICSID and elsewhere but has yet to comply with a single judgment. Stock aims to take a favorable ICSID judgment to jurisdictions where he might attach Argentine government assets, a process that will be long and complicated.

7. Stock has written to several G8 Presidents, copying US Treasury secretaries in two administrations, seeking pressure on Argentina. He is aghast that Argentina has been invited into the G20 process alongside nations that meet their financial obligations and abide by international dispute settlement mechanisms.

8. Comment: Stock struck econoffs as determined and unyielding. He stressed several times that TFA has no pecuniary interest in the issue, other than defending its members' interests. Stock said TFA had already recovered from Argentine para-statals and local governments approximately USD 2 billion, settling claims for modest haircuts, in the order of less than 10 percent. He is willing, thus, to entertain serious offers. He did not strike us as unreasonable, though he's clearly scornful of many Argentine officials - including Finance Minister Boudou - whom he considers have dealt with him and his members for the most part in bad faith. For the Italian banking industry, the Argentina bond episode remains deeply embarrassing and emblematic of a breach of faith by the industry toward its clients (most financial products are distributed to Italian investors through banks). It's unlikely, therefore, that the Italian banking sector - through TFA - will back away from the matter absent a reasonable GOA offer to their clients.
THORNE

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