Business

Clock strikes 12:00: Argentina expected to default

It’s all over but the crying for Argentina — and Paul Singer.

Barring a last-minute reprieve from a Manhattan federal judge, the South American country was likely to default on $13 billion of sovereign debt at 12:01 a.m. Thursday, after last-ditch negotiations with the billionaire hedge-fund manager failed to seal a deal.

“Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in default,” court-appointed mediator Daniel Pollack said in a statement after talks in a Midtown Manhattan office building broke off at about 5 p.m.

Argentine stock markets are expected to see a huge selloff on Thursday if there is a default, and inflation, already running at 40 percent by some estimates, could spike even higher.

Keeping up the same rhetoric that has pervaded most of the 11-year battle, Argentina Economy Minister Axel Kicillof said in an hour-long press conference Wednesday evening that the “vultures” — as the country has called the holdout bondholders, led by Singer’s Elliott Management hedge fund — refused to agree to the same deal Argentina offered other bondholders.

Singer and other investors bought defaulted bonds at a discount, refused the discounted exchange offer and demanded full payment.

The lesser deal offered Wednesday still would have given Singer’s holdout group a 300 percent gain, Kicillof said.

“This was a situation of extortion,” said Kicillof, noting the country cannot afford to pay Singer what he wants.

A deal proposed by Argentine banks — to pay Singer a small piece of what he demanded in return for him agreeing to a legal time-out and a promise from the banks to work out a deal down the line — went nowhere Wednesday.

The Singer group refused the offer.

Judge Thomas Griesa had ruled that the Singer group must be paid $1.65 billion when Argentina made its $539 million interest payment to bondholders who agreed to a debt exchange of lesser value after the country’s default in 2001.

The deadline for making that interest payment is midnight Wednesday.

As the talks were ending without a deal, Standard & Poor’s downgraded the country’s debt to selective default.

“We will defend the exchange we have done so successfully,” said Kicillof, referring to Argentina’s worries that a clause in the exchanged bonds would force it to pay as much as $120 billion in other claims.

Some of those exchange bondholders have asked Griesa for a stay of his orders to avoid a default, so it’s not clear they will press for a default through the courts.

The June payment has already been paid by Argentina to Bank of New York Mellon, which has held onto it. A default could be triggered if the owners of credit default swaps — who bet Argentina would default — asked the International Swaps Dealers Association to declare a credit event so they can get paid.