Argentina plans bond swap to avoid US debts

Argentina has tried a new legal move in its efforts to avoid paying off US hedge funds that have acquired its debt and which are refusing to take part in a restructuring.

President Cristina Fernandez de Kirchner unveiled domestic legislation that would swap its existing bonds, which are covered by US law, for new notes governed by Argentine law.

“If bondholders decide in individual or collective form to ask for a change of legislation and jurisdiction of their bonds … the economy ministry is authorised to implement a swap for new public bonds under local legislation,” Ms Fernandez said. “This is an option bondholders have. It’s not an obligation because we can’t impose obligations on them according to our contracts. Our contractual obligation is to always guarantee that they can collect [interest].”

Argentina defaulted on its debt last month after a New York court prevented the country from paying interest to bondholders unless it first compensated the hedge-fund holdouts that are demanding repayment in full.

Some analysts warned even if bondholders accepted the swap offer the manoeuvre could carry legal risks. “Argentina could end up in contempt,” said Alejo Costa, a strategy chief at the Buenos Aires investment bank Puente, referring to the original US court order forbidding interest payment.

Axel Kicillof, the economy minister, also said yesterday that Argentina would make the next coupon, or interest, payment due on its bonds on 30 September, using an Argentine bank as a intermediary. Its last interest payment, of $539m (£324m), remains with the intermediary Bank of New York Mellon after the US court blocked the payment to investors.