The London Court has dismissed Argentina’s appeal against a ruling which would have required it to pay $1.5bn to four hedge funds that bought its GDP-linked security. This is a major blow to the cash-strapped libertarian government of Javier Milei.
In 2013, Argentina altered the way they calculate GDP. They argued that this meant it didn’t need to pay any interest on euro-denominated bonds — issued from 2005 to 2010 as part a debt restructuring — which were linked to GDP growth.
Palladian Partners HBK Master Fund Hirsh Group Virtual Emerald International Limited (which hold approximately 48 per cent) and HBK Master Fund — which, like many bonds in emerging markets, are governed under English law – brought a lawsuit against Argentina in 2019, asking for compensation for their losses. The court ruled their favor in 2023.
Argentina’s economy has been in a deep economic crisis. Inflation is close to 300 percent, the foreign exchange reserves are dangerously low, and payments of billions of dollar to foreign creditors are looming. The lawyers for the country argued that paying hedge funds would have an adverse effect on its ability to service other debts, and “harm the people of Argentina”.
Buenos Aires is facing a number of legal challenges, some dating back to the leftist government of Cristina Fernandez de Kirchner from 2007-2015. A New York court ruled last year that Argentina had to pay $16bn in damages to two former shareholders in the state energy company YPF. This was the largest ruling ever against a sovereign by a New York judge.
Sebastian Maril, director of consultancy Latam Advisors, who has closely followed Argentina’s litigation overseas, said Wednesday’s decision was “proof that Argentina’s legal strategy does not work”.
He said: “We almost always lose these cases. Continuing to appeal and to delay is a waste of money and allows interest and legal costs to accumulate.”
A New York court ruled in April against plaintiffs who had brought a similar lawsuit relating to Argentina’s dollar-denominated, GDP-linked securities. The court said that they did not follow the steps laid out in bond contracts for bringing a suit. The plaintiffs have appealed.
As a condition for its appeal, Argentina had to deposit €310mn in an escrow account pending the London Court’s decision.
In the near future, it is unlikely that Argentina can pay the entire judgment, which amounts to €1.33bn with interest. Even after months of efforts by the new government, its foreign reserves, excluding debts, hover around zero.
Maril said that the government should negotiate macro deals with all its judgment creditors. Maril said that the government should not pay right now because it is very difficult, but instead agree on a timetable to pay in future.
Post Disclaimer
The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.
This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.
The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.