Argentina’s markets watchdog on Monday launched an investigation into what it believes might have been unlawful speculation by holdout creditors whose litigation against the nation for repayment of their defaulted bonds pushed it into a new default last week.
The Argentine government also reiterated its fierce criticism of the mediator in debt talks with the holdout hedge funds for being “biased” and a “spokesman of the vulture funds.”
Local markets were mixed on Monday as players waited for new signs of how soon Argentina might reach a deal with holdouts to exit default. Argentine bonds fell slightly, while the Merval stock index flickered up and down.
The holdout investors, led by New York-based hedge fund NML Capital Ltd, are seeking US$1.5 billion for bonds defaulted on by Argentina in 2001. The nation has settled with most of its creditors, but the holdouts refused to accept the lower payments. The government has said it cannot now settle with the holdouts without offering similar terms to the others.
Argentine Securities Commission Chairman Alejandro Vanoli said it had asked its US counterpart for information on the trade of Argentina’s sovereign debt and credit default swaps (CDS), derivatives used to insure against default.
The watchdog wanted to check whether holdouts who rejected Argentina’s restructuring in the wake of its default held or traded CDS while they took part in negotiations with Argentina which could trigger a default.
“The use of insider information, which would be the case here, and market manipulation are crimes in Argentina, they are crimes in the United States, and they imply economic sanctions and eventually criminal sanctions,” Vanoli told a news conference.
Over nearly the past two years, sources familiar with the position of the holdouts have said the firms are not holders of CDS positions. A new source said on Monday that this stance has not changed.
“There is absolutely no evidence to demonstrate that the holdouts hold Argentine CDS positions. No proof,” said the source, who is familiar with the holdout positions.
Argentina missed a deadline at midnight on Wednesday last week to make a coupon payment on a restructured bond after failing to reach a deal with holdouts.
A US court had ruled that Argentina could only service its exchange bonds if it paid holdouts in full their defaulted debt at the same time.
US District Judge Thomas Griesa said last week that Argentina must continue negotiations with mediator Daniel Pollack to reach a deal with holdouts. Argentine Chief of the Cabinet of Ministers Jorge Capitanich on Monday reiterated his criticism of the lawyer.
“We consider he has been incompetent ... that he has been manifestly partial and definitively does not fulfill the role a mediator should,” Capitanich said in his daily briefing.
Griesa later on Monday came to Pollack’s defense with an order confirming that Pollack is to remain the mediator, adding that removing him would be a “gross injustice” and drastically interfere with the discussion process that the judge wants to continue.
“He [Pollack] has been even-handed in relationship to the parties. There has been no bias in any degree,” Griesa said.
Meanwhile, several international banks were reportedly in talks to buy some of the Argentine bonds held by US investors that could end the default issue.
A bank buyout might allow Argentina to exit default before it is pushed deeper into recession, or it faces other potentially severe economic consequences.
The negotiations were reported on Monday by Argentine financial newspaper Ambito Financiero and other media. The banks are said to include JPMorgan, Citibank, HSBC and Deutsche Bank. All declined to comment.
Argentine officials have said they do not oppose a private bank resolution to the situation, but Ambito Financiero reported that the government was not part of the negotiations with the international institutions, for legal reasons.
Ambito Financiera, which cited an unnamed source close to the negotiations, said the international banks would need some type of guarantee that they would be able to recover their investment in the holdout bonds.
Additional reporting by AP
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