Megaswap II: Sturzenegger's Revenge
Alfredo Zaiat, Página/12.
Through a "Decree of Necessity and Urgency" signed by President Mauricio Macri, the Argentine Central Bank will receive a series of National Treasury bonds paying 7.75% and 7.875% in return for nontransferable notes paying only 0.6% (both, denominated in dollars). The new bonds will then be sold to international banks, including HSBC, JP Morgan, Deutsche Bank, Citibank and Goldman Sachs.
The operation, led by Central Bank President Federico Sturzenegger and Finance Minister Alfonso Prat-Gay, includes a discount of 15% in principal and constitutes an additional debt service obligation of over $9.1 billion during the whole duration of the bonds (ranging from 6 to 11 years in maturity). Whereas the Treasury notes being relinquished are mostly for low-cost intra-public sector debt of a revolving nature, these new bonds are more costly (at 7.8% interest) and cannot easily be refinanced. Sturzenegger, moreover, has announced plans to use these bonds as potential collateral for at least $5 billion in further foreign borrowing.
This would be the second such megaswap for Sturzenegger, who is currently under indictment for having authored Argentina's infamous 2001 bond swap; the consequent increase in debt and interest helped result in the country's much-publicized collapse that December and opened the door to holdout lawsuits that affect Argentina to this day. As in the 2001 megaswap (which yielded $150 million in commissions), this transaction is expected to generate tens of millions in fees for the banks and individuals involved.
The initial Megaswap of $16.1 billion could, by Prat-Gay's own admission in the press conference, be followed by similar additional swaps for a total of up to $64.5 billion. The current megaswap would be in the form of three issues: Bonar 2022, at 7.75% ($4.5 billion, including the 15% discount); Bonar 2025, at 7.875% ($4.5 billion); and Bonar 2027, at 7.875% ($4.7 billion).
These bonds will thus require an estimated additional debt service of $9.1 billion compared to the Treasury notes being swapped: $2.0 billion additional in the case of Bonar 2022; $3.1 billion for Bonar 2025; and $4.0 billion for the Bonar 2027.
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Coming soon to a country near you. Rated R, for ripoff.
