By Joan Magee
NEW YORK, Aug 14 (IFR) - Argentine debt talks collapsed dueto disagreements over the price of its bonds and the absence ofa government guarantee to honor payments on them, sources closeto the discussions said.
International banks had appeared to be nearing agreement tobuy Argentina paper from holdout creditors who have refused toaccept a debt restructuring deal with the sovereign.
There were hopes a deal between Citigroup, Deutsche Bank,HSBC and JP Morgan on one side, and litigant investors led byElliott Management and Aurelius Capital on the other, could comethis week.
But the two sides could not agree on price, particularly asthe government assurances weren't explicit or strong enough tojustify a higher valuation, the sources said.
An initial offer of 80 cents on the dollar for the bonds wasvirtually halved to around 40 and 50 cents amid uncertainty overwhether Argentina would actually pay the bonds - US$1.33bn plusaccrued interest - next year.
For its part, Argentina was thought to be unwilling toprovide a guarantee of payment to banks for fear of violatingthe RUFO clause, which expires at the end of the year andrequires it to offer equal terms to restructured bondholders aswell.
"None of the big banks want to hold illiquid assetsforever," said Jorge Piedrahita, CEO at Torino Capital, a brokerdealer focused on emerging market debt.
"You want more than a nod and a wink from (ArgentinePresident) Cristina (Fernandez de Kirchner)," he said. "And thatwas not coming from the government."
One source told IFR: "There's no way an international bankcan bridge funding when Argentina is looking riskier andriskier."
Holdout sources denied market rumors that Aurelius andElliott themselves had been unable to agree on an offering pricefor the debt.
TOUGH TALK
Heated public rhetoric from government officials also didlittle to assure participants that the sovereign was supportiveof a deal, the sources told IFR.
After weeks of government accusations that the UScourt-appointed mediator for the debt talks was "incompetent"and "biased", cabinet chief Jorge Capitanich was quoted Thursdaymorning saying that his country was "in the hands of aninternational financial power comprised of small, voraciousinterests that form a real international mafia".
"Part of the problem is the Argentine government'srhetoric," one of the holdout sources said.
"Combined with the government's track record of never beingwilling to negotiate with bondholders, how can any third partybelieve that the Kirchner administration will honor theseobligations?"
Holdout creditors have said they would be open to a hybriddeal involving payment with bonds. This is how Argentina paidsettled claims due to the Paris Club and Spain's Repsol ascompensation for the 2012 expropriation of its majority stake inYPF.
However such a deal could only be cut with the government,which has clung to the idea that the RUFO clause, which expiresin December, impedes it from offering better terms to theholdout investors. Such a move would trigger the RUFO clause andexpose it to billions of dollars worth of claims.
Citigroup, Deutsche Bank, HSBC and JP Morgan declined tocomment. (Reporting by Joan Magee; Editing by Paul Kilby and MarcCarnegie)
HSBC Holdings (HSBA)
