Category Archives: English

Real Estate: Argentina Tries to Coax Undeclared U.S. Dollars Into Energy, Construction Projects

The Wall Street Journal – By Ken Parks

BUENOS AIRES–Argentina’s government will ask Congress to approve legislation that will allow Argentines to invest their undeclared U.S. dollar savings in local bonds to finance energy and construction projects, Economy Minister Hernan Lorenzino said Tuesday.

Argentines are thought to hold tens of billions of undeclared dollars in Argentina or offshore bank accounts.

Mr. Lorenzino’s announcement coincides with the weakening of the Argentine peso to historic levels against the dollar on the black market. At the same time, the central bank has struggled to rebuild its foreign currency reserves due in part to persistent capital outflows.

“People might have their cash in a safety deposit box, or under the bed, or worse, in a tax haven. This [measure] means taking those resources and incorporating them into the productive sector,” Mr. Lorenzino said in a televised press conference.

Mr. Lorenzino said the administration of President Cristina Kirchner will submit the legislation to Congress immediately.

All the senior members of Mrs. Kirchner’s economic team were present at the event: Commerce Secretary Guillermo Moreno, who is in charge of import and price controls; Deputy Economy Minister Axel Kicillof; Central Bank President Mercedes Marco del Pont; and tax chief Ricardo Echegaray.

Argentines have long viewed the dollar as a store of value due to their country’s long history of high inflation and economic crisis that frequently ended in major devaluations of the peso. The unrelenting weakness of the peso on the black market in the last six months is feeding fears that a devaluation might be in the works, and stoking even more demand for scarce dollars.

In an attempt to calm the public, Mrs. Kirchner said Monday that her administration won’t devalue the peso.

Inflation that most economists say is around 24% a year coupled with government restrictions on the dollars people and businesses can legally purchase are driving some Argentines into the arms of black market currency dealers.

The peso has lost about 64 cents this month to set a record low of around 10.04 to the dollar Tuesday, according to newspaper El Cronista, which publishes an average of underground exchange rates.

The black market is thought to be small, but does influence prices in some parts of the economy, especially real estate, which for decades has overwhelmingly used the dollar in transactions.

On the regulated currency market the dollar sold for 5.2090 pesos, though dollar rationing means that for most Argentines the official exchange rate is a mirage.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

www.kierjoffe.com

Real Estate: Buenos Aires Lures Foreign Buyers With Tumbling Prices

This article appeared May 3, 2013, on page M3 in the U.S. edition of The Wall Street Journal, with the headline: Foreign Buyers With Cash Can Tango in ‘Paris of South America’.

Roderick Chapman, a 50-year-old marketing specialist from Vancouver, British Columbia, was in Buenos Aires last month, looking at one-bedrooms in the city’s posh Recoleta district.

“I’m absolutely amazed by the number of choices,” said Mr. Chapman whose budget for a vacation property is 130,000 U.S. dollars—the currency in which most Buenos Aires real estate typically is traded. “It is overwhelming, really.”

With prices for luxury apartments down by 20% to 25% since last year, according to local real-estate agents, expatriates like Mr. Chapman are finding great buys in Buenos Aires after nearly a decade of steep price climbs.

Nicely renovated apartments with parquet floors and terraces in Recoleta—the neighborhood that gave Buenos Aires the moniker “the Paris of South America”—are selling for roughly $185 per square foot, down from roughly $240 in 2008, according to local agent estimates (closing prices aren’t published in Buenos Aires). One-bedrooms in trendy Palermo list for about $150,000 and sell for less. Local brokers offer listings for $200,000 to $400,000 that they say might have sold for 40% more two years ago. Some multimillion-dollar properties are being marketed for nearly half of what was asked just a few years ago.

But there is a catch to the new Buenos Aires buyers market, as Mr. Chapman’s house-hunting trip illustrates. “I actually have to cut my trip short, because I’ve run out of dollars and I can’t get any more,” he said.

For Mr. Chapman, as for other foreign home shoppers in Buenos Aires, navigating Argentina’s complicated currency landscape is the wrench in the otherwise tempting real-estate works.

In May last year, Argentine President Christina Kirchner strictly limited access to U.S. dollars and other foreign currencies in a bid to stem capital flight. With the Argentine peso facing about 25% annual inflation (government figures, widely discredited, set the rate much lower), and an unofficial exchange rate that has effectively devalued the peso sharply, demand is high for dollars.

These days, the main feature that foreign buyers say they look for in a Buenos Aires property has nothing to do with closet space or a wide terrace. It is a seller with a bank account outside Argentina to which they can legally wire funds. This is a way to get around having to convert any dollars wired into Argentina into pesos at the official rate, after which it is nearly impossible to convert back into dollars at the official rate.

Mr. Chapman has asked brokers to show him only apartments owned by sellers willing to do a foreign-account-to-foreign-account sale. “I absolutely, absolutely, absolutely will not bring my money into Argentina,” he said.

The currency situation has spooked some foreigners living in the country. Real-estate agent Pericles Economides said foreign homeowners make up 90% of the sellers in his listings, while local buyers eager to convert their devaluing pesos into more stable real estate make up nearly all his current buyers.

Still, in such a climate, foreign buyers find that their dollars—in cash, as mortgages are rare in Argentina—give them market clout. Buenos Aires property developer Gabriel Maioli, a partner at M&M Developers in Buenos Aires, began selling newly built apartments in pesos for the first time last year but offers discounts to buyers willing to pay in dollars, he said.

Among luxury apartments currently on the market is the 9,200-square-foot 14th floor of the Art Deco Kavanagh Building, offering sweeping views of the city’s central Plaza San Martín and, on a clear day, neighboring Uruguay across the River Plate. Two of the bedrooms open onto terrace gardens so large their lawns require mowing. The owner, real-estate mogul Alain Levenfiche, put the property on the market in 2008 for $5.9 million but failed to sell it. Today, he is asking $3.3 million.

In Palermo Botánico, considered to be one of the city’s premier neighborhoods, a five-bedroom apartment with a bird’s-eye view from a large deck of the city zoo’s llamas, guanacos and condors is on the market for $695,000. American owners Douglas and Janet Choi, both 43, who moved to the city in 2008 for a “personal-growth opportunity” and are now planning a move to London, said they spent $200,000 on renovations that included a modern, granite-topped kitchen and a wood-burning grill on the terrace.

Some local agents have called the Chois “dreamers” because of the property’s price tag, estimating that $500,000 is a more likely selling price. Mr. Choi said the family doesn’t have “the need to sell such a special place,” and will rent if they can’t find a buyer before their move to London.

Alan Dickinson, a 50-year-old technology sales executive in New York, is looking to buy his second property in the city. “In what other world-class city can you buy property of this caliber at those prices?” said Mr. Dickinson, who raves about the city’s pasta, steak, and “really friendly, inclusive” people. Last month, he met with several Buenos Aires real-estate brokers, instructing them to alert him to distressed sellers looking for a quick, dollar-denominated sale.

In 2005, he paid $185,000 for a newly built Palermo duplex with a terrace, finally taking possession in 2009 after construction delays. He lives in it for a week out of every two months and rents it out to tourists the rest of the time. In four years, he has grossed more than what he spent on the unit, he said.

But with the new restrictions on U.S. dollars and other foreign currencies, many deals are falling apart at the 11th hour due to the difficulty in arranging payment, said Michael Koh, a real-estate investor and consultant who has made more than 500 real-estate transactions in Buenos Aires on behalf of clients. Negotiating sales, he said, has become “crazy.”

In April, two sales Mr. Koh was negotiating on behalf of foreign sellers stalled when one Argentine buyer wanted to pay with gold bars and another offered a studio apartment as partial payment.

The hurdles haven’t stopped him from investing. Mr. Koh owned eight properties in the city before closing last week on a ninth apartment. He bought a 500-square-foot, sleekly furnished one-bedroom with a balcony in Palermo Hollywood for $130,000, which he intends to rent short-term to tourists.

“I swore I would never buy anything there again,” he said, “but there are now some deals that are too good to pass up.”

Richard Maudsley, a San Diego-based real-estate investor, also is undaunted. He arrived in the city in mid-April.

Mr. Maudsley, 57, spent a week meeting with brokers and viewing apartments in Recoleta and Palermo, a hip, bohemian neighborhood.

But he isn’t pulling the trigger quite yet. He met with financial and legal advisers who can help him quickly close a deal if he spies a bargain. He said Argentina’s property market appeals to him because “it is a cash market,” less likely to be affected by rising and falling interest rates.

“The peso aspect is a real risk, but I’m banking on the fact that things will normalize down there,” said Mr. Dickinson, the technology sales executive. “I think the country will get its act together.”

Buying in Buenos Aires:

  • Nonresidents can purchase property in Argentina and payment can be made between overseas accounts, as long as the sale is declared and taxes are paid.
  • The buying process can take a few months. A buyer signs a purchase contract with 30% down and a notary public does a title check. When the balance is paid, ownership is transferred.
  • Costs include a 1.5% tax on the sale price for the seller, an additional 1.8% federal tax on the buyer and seller, and 1% to 2% in notary fees, paid by the buyer.
  • Brokers for buyers and sellers charge between 2% and 5% of the sales price.
  • Additional annual taxes include municipal and provincial property taxes, as well as a federal tax of 1.5%. Income from rental units is taxed at 21%.
  • There are no capital-gains taxes in Argentina when the property is sold later for a profit. But foreigners need a certificate to sell showing taxes are paid up.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

www.kierjoffe.com

 

Argentina: Ralph Lauren Outed Its Subsidiary’s Bribery and Set an Example for All

Forbes.com – by Jonathan Green & James L. Athas

In 2010, while working to enhance its worldwide internal controls and compliance program, Ralph Lauren Corporation discovered evidence that its Argentine subsidiary had been paying bribes to government officials in Argentina. The bribes, paid through customs brokers, facilitated the entry of RL’s products into the country without necessary paperwork and avoidance of inspections of prohibited products. The bribes were disguised, along with other legitimate charges, as “loading and delivery expenses” and “stamp tax/label tax” on invoices submitted by a local customs broker to RL’s general manager in Argentina.

Between 2005 and 2009 RL paid approximately $568,000 in bribes to Argentine officials.  Its general manager also provided or authorized gifts to three different government officials, including perfume, dresses, and handbags valued at $400 to $14,000 each, to secure the importation of RL’s products into Argentina.

The challenges RL encountered in Argentina are similar to those encountered by many companies operating internationally, as general counsel and compliance officers everywhere well know. The Justice Department and the Securities and Exchange Commission have not hesitated in pursuing Foreign Corrupt Practices Act cases against companies involved in such conduct.

RL didn’t act perfectly (it had, for example, little anti-corruption training or oversight in Argentina before 2010), but once under investigation it served as a model for any other company that faces such challenges in the future. It addressed the issues head on, by:

(1) Terminating its customs broker,
(2) revising its anti-corruption policy and translating the policy into eight languages,
(3) increasing its due diligence procedures for third parties,
(4) implementing more stringent commission and gifts policies,
(5) conducting in-person anticorruption training for certain employees, and, most significantly,
(6) ceasing retail sales in Argentina and winding down all of its operations there.

In addition, upon learning of the misconduct RL promptly—within two weeks—reported the violations to the SEC and the Justice Department, voluntarily and expeditiously produced documents and transcripts from interviews (translated into English), and otherwise cooperated in investigations by both. RL even made its overseas witnesses available for SEC interviews and brought them to the U.S.

According to the SEC’s acting director of enforcement, RL’s timely and thorough cooperation resulted in “substantial and tangible benefits” for the company, including non-prosecution agreements with both the SEC and the Justice Department. In sum, RL agreed to pay more than $700,000 in disgorgement and interest to the SEC, and $882,000 in penalties to the DOJ. These amounts are not insignificant, but they are significantly better than the company might otherwise have faced for a five-year bribery scheme involving hundreds of thousands of dollars. Most important, the company will not face charges and can now put the matter behind it.

This is not the first time the government has gone out of its way to encourage cooperation and praise robust compliance programs. In 2012 the SEC and the Justice Department publicly declined to bring enforcement actions against Morgan Stanley MS +0.64% after one of its employees bribed a Chinese government official in violation of the FCPA. That decision was the result, in large part, of the fact that “Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials.” Government officials similarly lauded Morgan Stanley’s cooperation and thorough internal investigation in the case.

The lesson to be learned from RL’s recent experience is that a vigilant (re)assessment of one’s anticorruption policies and swift action and cooperation when any misconduct is discovered will continue to be the height of fashion—and function—regarding the FCPA.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

www.kierjoffe.com

Argentina’s debt default – Payback postponed

The Economist

The dramatic showdown between Argentina and holders of its defaulted debt looked for a moment last week as if it was about to move one step closer to closure. Instead, the legal and financial tangle has become still more confused.

In 2001 the Argentine government reneged on $81 billion of liabilities. It staged two restructurings in 2005 and 2010, in which the owners of 93% of the defaulted debt agreed to exchange their holdings for new securities, at a 65% loss. The other creditors have held out for a better deal, which they hope to get through the courts. On March 29th, following a request by New York’s Second Circuit Court of Appeals, Argentina submitted a filing detailing how it proposed to pay these so-called “hold-outs”, who are suing it for $1.3 billion in principal and past interest. The plaintiff group, which consists of billionaire hedge funds and individual retail-investors, insists that a clause called pari passu (“equal step”) dictates that if Argentina is to continue paying back the bondholders who exchanged their defaulted debt, it must pay back the hold-outs too. Thomas Griesa, a district court judge, endorsed this argument in October. Now it is up to the appellate panel to determine how to fulfill his equal-treatment order.

In a move that frustrated many but surprised few, Argentina’s 22-page non-answer to the court was to offer the hold-outs a choice of discount bonds, par bonds or a combination of the two—essentially the same package the hold-outs have refused twice before. Argentina’s lawyers argued that the proposal satisfied the pari passu clause and asserted that plaintiffs cold not use the clause to “compel payment on terms better than those” given to the bondholders who exchanged their holdings in 2005 and 2010.

On April 2nd the court gave the plaintiffs three weeks to respond to the offer. Having spent 11 years and untold money on legal fees, the hold-outs are highly unlikely to accept such a deal, which makes it difficult for the appellate panel to accept the proposal as a genuine attempt to fulfill its request.

Choosing an alternative will be tricky. Argentina has already promised to defy any order to pay the hold-outs in full, and cautions that awarding the hold-outs their full claim could provoke “me-too” demands totaling $43 billion—more than Argentina currently holds in foreign-currency reserves. Such a ruling would have a worrisome and potentially fatal effect on future sovereign-debt restructurings worldwide, since it would eliminate incentives for accepting a haircut. A Goldilocks ruling in the middle would invite similar problems on a smaller scale.

Many believe that if the court does not accept Argentina’s proposed payment plan, Argentina will appeal to and have its case rejected by the Supreme Court. After that, few judicial avenues would remain to explore: the only choices would be to comply with the orders of the appellate court, or enter into technical default.

Most countries would scramble to avoid that. But Argentina has already sealed its reputation as a serial defaulter, making one more instance less daunting. The country doesn’t receive much external financing or foreign investment and economists suspect that defaulting would not damage the country’s GDP by more than 1.5%. That is not to say it would be painless. Argentina’s provinces and businesses would be worse hit, and consumer confidence would undoubtedly dive, propelling the black market exchange-rate even higher than its current level, 60% above Argentina’s official rate.

Should it choose to default, Argentina will also need to puzzle out how to continue paying holders of its restructured bonds—a difficult feat, but one which its leaders appear committed to undertaking. At a press conference on March 30th Amado Boudou, the vice-president (pictured above), seemed to be speaking to these “exchange-bond” holders when he insisted Argentina would continue to meet its debt obligations and affirmed his country’s “willingness and capacity” to pay, “whatever the result” of the case before the appeals court. In order to respect such a promise, Argentina would probably transfer its current New York-law bonds to Argentine law. This offer would be laughable under other circumstances, says Bret Rosen, head of Latin America research at Standard Chartered Bank. But “between getting paid something or nothing, exchange-bond holders will likely choose something, even if it comes with risks.”

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

www.kierjoffe.com

Why Argentina’s Debt Problems Could Become An Investing Opportunity

Forbes.com – by Sara Zervos, OppenheimerFunds

As late as the early 20th century, angry investors sent warships to block the harbors of countries who had defaulted on their sovereign bond payments. That particular tactic is now behind us, butArgentina’s 2002 sovereign debt default has created a contentious game of chicken that continues even today. The decade-long saga is rife with legal twists and turns, and once again investors and rating agencies are bracing themselves for a possible Argentine default. An Appeals Court ruling on Nov. 28 delayed the day of reckoning, but come March 2013, Argentina could choose a path of technical default. Because Argentina has both the ability and willingness to repay its debt,  I will be monitoring conditions closely over the next few months for attractive Argentine investment opportunities.

The Battle Continues – But Its Effects Won’t Be Felt Globally

In the debt restructuring following the 2002 default, approximately 7% of the original bondholders remained “holdouts” – investors like hedge funds NML Capital Ltd. and Aurelius Capital Managementwho have not agreed to restructuring. Recent legal judgments have instructed Argentina to pay back –in full – these holdout investors, before the sovereign can pay any more coupons on the restructured debt (which it has been doing for years).

But who will be the first to swerve in this game of chicken? Argentine President Cristina Kirchner has claimed that paying 100% to these holdouts would violate Argentine law, which states that no holders of the defaulted bonds can be offered better terms than those accepted by 93% of investors in 2005 and 2010. The holdouts refuse to accept anything less than 100% repayment. The legal rulings are making it increasingly difficult for Argentina to find a way to continue to service debt without ceding to the holdouts.

The most likely conclusion to the drama will be a technical default that should not have widespread implications for the emerging market debt market. Emerging market countries have evolved far beyond the point where they can be considered one homogenous unit. Additionally, since the 2002 default, Argentina has been effectively shut out of the international debt market and currently makes up a mere 1.15% of the J.P. Morgan EmergingMarkets Bond Index Global.1  Argentina has stated numerous times that it wants to repay its creditors, and it has the cash to do so. The amount of money needed for holdouts is a mere $1.33 billion compared to Argentina’s current $45+ billion in international reserves. 2

Fears of Default Could Create Opportunity

This heated standoff will eventually subside, though Argentina faces serious economic pressures. Kirchner’s popularity is at a low. Domestic unions, a key support group, staged a general strike on Nov. 20 protesting low wages and insufficient retirement pensions. The International Monetary Fund recently issued a strong warning that the National Institute of Statistics and Census of Argentina should take greater care in calculating its inflation figures, which tend to vary greatly from third-party calculations.

We currently have no exposure to Argentina’s sovereign debt. However, we see global growth recovering in the coming quarters, which, in the past, has been a positive driver for Argentina’s outlook. If Argentine assets continue to cheapen due to the fear of a technical default (spreads of Argentine debt over U.S. Treasuries were near 1,200 basis points on Nov. 26)3, we believe that investors could be adequately compensated for investing in some particular bonds. Over the next few months, I will be keeping a close eye on the conditions in Argentina to identify potential investing opportunities.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

www.kierjoffe.com