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Argentine bonds rise after government unveils debt revamp framework

Kitco News

(Updates market levels, adds political context, analyst quote)

By Jorge Otaola

BUENOS AIRES, Sept 20 (Reuters) - Argentine bond prices rose and risk spreads tightened on Friday after the government submitted a debt renegotiation framework bill to Congress the night before, lending some clarity to how Argentina will respond to its latest financial crisis.

The price of over the counter government bonds rose 0.7% on average, almost regaining all the ground lost the day before, while risk spreads over safe-haven U.S. Treasury paper tightened 14 basis points to 2,101, according to JP Morgan’s Emerging Market Bond Index Plus.

“The presentation of the debt bill increased expectations among investors, hence the positive reaction in the bond market despite the fact that they still do not know if they will have the necessary political support to implement the plan,” said Gustavo Ber, head of local consultancy Estudio Ber.

The peso closed 0.16% weaker at 56.67 per dollar, ending the week down 0.92%. The currency was pounded 25% lower last month when business-friendly President Mauricio Macri performed poorly in the Aug. 11 primary, clearing the way for a likely victory by Peronist Alberto Fernandez in the Oct. 27 general election.

Macri’s administration said last month it would renegotiate terms of local and international sovereign bonds, after a sharp crash in the peso currency in August left Argentina teetering on the edge of default.

The draft law reviewed by Reuters seeks to avoid a legally messy restructuring by including collective action clauses, which require amendments made to a single series of bonds be approved by holders of 75% of the capital. The remaining 25% of holders would then be obliged to accept the restructuring terms.

If the changes affect two or more bond series, then consent would be needed from 66.66% of bondholders and at least half of those for each individual series of bonds. If these levels were met, then all holders would have no choice but to comply.

Fitch Ratings expects holders of Argentina dollar bonds to have to write off part of their investments under the revamp of terms, one of the agency’s analysts said. (Reporting by Jorge Otaola, Gabriel Burin and Hernan Nessi Writing by Hugh Bronstein; Editing by Tom Brown and Grant McCool)

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