Argentina: Article 194 pre-emption over the obligación negociable convertible, and the Ley 23.576 Article 12 vote that lifts it

Argentina permits a market-referenced convertible, but not in the form it takes elsewhere. Article 194 of Ley 19.550 gives shareholders a pre-emptive right over new shares and over convertible debentures, and Article 197 can lift it only for shares paid in kind. The escape is a publicly offered obligación negociable convertible, whose preference Ley 23.576 lets an extraordinary meeting suppress.

Key takeaways

• The convertible is inside the right, not outside it. Article 194 says in terms that shareholders also have a preferential right to subscribe debentures convertible into shares. Calling the instrument debt does not sidestep the offer.
• Article 197 does not reach a cash deal. The meeting may limit or suspend the right only for shares paid up in kind or given in payment of pre-existing obligations, in exceptional cases, with the item on the agenda.
• Ley 23.576 Article 12 is the escape, and it has arithmetic. Suppression needs at least 50% of the subscribed capital with option rights in favour, and votes against must not exceed 5% of that capital.
• Conversion itself is clean. Article 17 makes the issue resolution decide the capital increase at the same time, and Article 20 makes the holder a shareholder on notifying its election.
• The stock is the easy part. Whether a non-resident can move proceeds out is a Banco Central question, and this page states no current position on it.

Why a cash subscription cannot get past Article 194

Article 194 of the Ley General de Sociedades 19.550 gives ordinary shareholders a derecho de preferencia to subscribe new shares of the same class in proportion to their holdings, with a derecho de acrecer over what others do not take. The offer is published for three days in the legal-notices journal, and shareholders have 30 days from the last publication to exercise — reducible by an extraordinary meeting, for a company making public offerings, to a minimum of 10 days.

Two features of that article decide the market. It extends expressly to the subscription of debentures convertibles en acciones, so an instrument that converts is caught in the same net as the shares. And it says the right may not be suppressed or conditioned except as provided in Article 197.

Article 197 is narrow to the point of being decorative here. An extraordinary meeting, with the majorities of the last paragraph of Article 244, may limit or suspend the right in exceptional cases when the company's interest requires it, on two conditions: the item is on the agenda, and que se trate de acciones a integrarse con aportes en especie o que se den en pago de obligaciones preexistentes — shares paid up in kind, or given in payment of pre-existing obligations. Cash is neither. So a private placement by a public company does not travel to Buenos Aires unchanged, and a share subscription facility has no clean Argentine form.

The escape is Ley 23.576, and it is a one-off vote

Argentina's negotiable-obligations statute, Ley 23.576, does two things at once. Article 11 confirms that shareholders with preference and accretion rights over new shares may exercise them in the subscription of convertible obligations, so the instrument starts inside the right. Article 12 then gives the way out: for companies authorised to make public offerings, an extraordinary meeting may suppress the preferential subscription right altogether, provided the resolution carries the favourable vote of at least 50% of the subscribed capital with option rights and the votes against do not exceed 5% of that capital.

Read that as a register test, not a formality: on a register with an active minority the 5% limb fails before the 50% limb does. The same article lets the meeting suppress the derecho de acrecer and cut the preference period to not less than 15 days where there is a colocación en firme, a firm placement for public distribution.

What survives is one publicly offered convertible, authorised once, priced against the market at each conversion. It is not a revolving equity line: see convertible debentures for listed issuers, and expect to size the whole authorisation at the outset.

What gates the deal: the money, not the stock

Once the capital increase and the listing of the new shares are processed, conversion shares trade on BYMA, and there is no Argentine holding period. The resale analysis that dominates a US deal — set out on Rule 144 and restricted securities — has no local counterpart. The gates before that point are CNV authorisation and admission of the new shares.

The determinative question for a non-resident is not tradability but convertibility of the proceeds: whether, when and on what terms it may reach the official foreign-exchange market. That is a Banco Central de la República Argentina question, not a CNV one, it has changed repeatedly, and it is why Argentina screens as constrained rather than permissive. This page states no current foreign-exchange position, because none was verified.

Send the register profile and the vote arithmetic if the company is listed on BYMA or dual-listed.

• All markets
• Germany
• Belgium
• Ireland
• Convertible debt financing

Sources

• InfoLEG — Ley 23.576, obligaciones negociables
• InfoLEG — Ley General de Sociedades 19.550
• Ley 19.550 Article 194 — suscripción preferente
• Ley 19.550 Article 197 — limitación al derecho de preferencia

Financing an Argentine listed issuer: frequently asked questions

Can an Argentine listed company issue new shares for cash to one chosen investor?

Not without offering them to shareholders first. Article 194 of Ley 19.550 says the preferential right may not be suppressed except as provided in Article 197, and Article 197 reaches only shares paid up in kind, or given in payment of pre-existing obligations. A cash subscription is neither.

What vote suppresses the preferential right on a convertible obligacion negociable?

For a company authorised to make public offerings, Article 12 of Ley 23.576 lets an extraordinary meeting suppress it where at least 50% of the subscribed capital with option rights votes in favour and votes against do not exceed 5% of that capital. It is one vote, taken before issue.

Can a drawdown-on-demand share subscription facility be run in Argentina?

Not as a facility. Every drawdown of new shares for cash meets Article 194 again. What clears the gate is one publicly offered convertible whose preferential right has already been suppressed by the Article 12 vote. The cadence is set by the statute and by CNV authorisation, not by the issuer.

Are the shares issued on conversion tradable in Argentina?

Once the capital increase and the listing are processed they trade on BYMA, and the statute imposes no holding period. Tradability is not the difficult part. Whether a non-resident may reach the official foreign-exchange market to repatriate proceeds is a Banco Central question for Argentine counsel.