US judge blocks Citi handling of Argentina debt payments

A US judge on Thursday prohibited Citigroup from handling payments on Argentine bonds issued under Argentina law, adding a new challenge in the country's bitter debt fight with US hedge funds.

Judge Thomas Griesa of the district federal court in New York rejected the US bank's request to process the payments, saying they would violate his ruling last year that Argentina must first pay off hedge funds on the bonds they hold before it can pay other creditors.

Citigroup and Argentina had argued that the Argentine-law exchange bonds, and Citigroup's Argentina subsidiary, did not fall under the US court's ruling in the hedge fund case, and so the bank should be able to process the funds to the bondholders.

The court rejected that argument, saying that the hedge fund case applied to any payments made on any external debt, and the Argentine-law bonds, denominated in US dollars and sold to foreign creditors, amount to external debt even if issued inside the country.

"Since the exchange bonds at issue here are denominated in dollars, they qualify as 'external indebtedness' of the Republic," Griesa's ruling said.

The ruling blocks the next payment on the bonds, scheduled for March 30.