With the devaluation of the peso in January 2002, TGN stopped paying interest and principal on all debts, but in July the company reached a 'stand-still' agreement with creditors, by which it paid all outstanding interest and agreed to continue paying interest at a cap of 3.5% to all creditors, while not paying any of the capital.
"Last year we were in freefall and we didn't know how bad things would get, but Argentina has started to recover...so on that basis we can make an offer to restructure our debts," the source said. According to Fitch analyst Cecilia Minguillon, TGN may have decided to start the renegotiation process now, because the 'stand-still' agreement was based on a cash flow situation that depended on the renegotiation of the company's concession contract with the federal government. But the government has repeatedly postponed renegotiating public utility contracts and with a new president scheduled to take office in late May, it seems unlikely that the new administration will turn its attention to renegotiating contracts for about a year, Minguillon said.
Under that worrisome scenario, it makes more sense for TGN to try to renegotiate its debts now, rather than wait for contract talks, she added. Although the TGN source denied that the decision to renegotiate its debts is directly related to the government dragging its heels, "we have waited a long time [for contract renegotiation] and nothing has happened, so we have to move on without it." Whereas other Argentine energy companies have been forced to default on principal and interest payments, since signing the standstill agreement TGN has defaulted only on principal.
This relative financial strength comes from its focus on exports and the pipeline operations and maintenance (O&M) business, which generate US$54mn annual income, Minguillon said. "This gives the company a stable cash flow in dollars," she said. In addition, TGN has traditionally been a company that has favored maintaining its assets over issuing dividends to boost its share value in the short-term. As for how successful TGN's debt restructuring plans might be, "TGN is in its first stage of renegotiation so we will have to wait see," Minguillon said. TGN's main creditors are the International Financial Corporation, Spanish bank Santander and the US' Boston Bank of America. TGN is a natural gas transporter serving northern and central Argentina. The company is 29.4% owned by US energy company CMS and 70.4% by the Gasinvest consortium of France's TotalFinaElf (27.2%), Argentina's Compania General de Combustibles (27.2%), Argentina's Techint (27.2%), and Malaysia's state oil company Petronas (18.4%).
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