Photo: YouTube via TheFederalistSociety
You can almost feel the vitriol in Paul Singer’s Q4 investor letter to clients of his hedge fund, Elliott Management.Naturally, that vitriol is directed at Argentina.
The two parties have been engaged in a knock down, drag out legal battle over $1.2 billion of unpaid Argentine sovereign debt for years now. Singer even got a Court in Ghana to hold an Argentine naval vessel in one of the African nation’s ports.
And in December, just when it looked like things were going Singer’s way, Argentina’s lawyers managed to get the case sent back to an appellate court.
So when CNBC’s Maneet Ahuja broke the news that Singer spent a large portion of his Q4 letter bashing Argentina, no one was really surprised. The length of his rant and the passion in his writing, however, is just stunning.
During the fourth quarter, there were considerable developments in our long-standing litigation against the Republic of Argentina. In late October, the U.S. Court of Appeals for the Second Circuit affirmed a district court ruling that (i) Argentina violated the Equal Treatment provision in Elliott’s bond contract with the Republic, and (ii) as a remedy for the violation, Argentina must make ratable payments to Elliott and its co-plaintiffs when it makes payments on its performing bonds. The appellate court remanded two issues (how the ratable payment formula operates and how the injunction applies to third parties involved in the payment mechanism) for clarification to the district court, which ruled in our favour on both issues in late November. The Second Circuit set an expedited schedule for briefing and oral argument related to the remanded issues, with a hearing set for February 27.
Argentina’s response to the ruling was defiant and acrimonious. The nation’s highest officials – including President Cristina Kirchner – immediately, loudly, and repeatedly declared that Argentina would not comply with the court’s order. They even called the decision “judicial colonialism,” which is quite puzzling since in its bond contract Argentina chose irrevocably both to submit itself to the jurisdiction of New York courts and to waive its sovereign immunity. The hypocrisy was also thick considering that Argentina proudly accepts U.S. court rulings that fall in favour of the Republic. Given Argentina’s hawkish and incoherent hyperbole following the ruling, it is hardly difficult to understand why the global community (in both the public and private sectors) has lost patience with the Kirchner Administration. A significant number of World Bank members have recently been voting against most aid to Argentina, the World Trade organisation’s complaints against Argentina are piling up, the International Monetary Fund has signaled it may deliver the Republic a “red card” by early February, and there is increasing commentary calling for Argentina’s removal from the G-20. Furthermore, despite Argentina’s slim 40% debt-to-GDP ratio, traders currently price Argentine sovereign debt as among the least creditworthy in the world, demanding yields of approximately 11%. By comparison, sovereign debt issued by Argentina’s neighbours, which include nations with considerably fewer sources of wealth on a per capita basis, trade at less than half that yield. The lesson is painfully obvious: the inexhaustible disregard for the rule of law by the political class has cost the Republic, its provinces and local businesses tens of billions of dollars in debt service, and it will continue to stand in the way of an Argentine economic recovery.
Nonetheless, Argentina continues to thumb its nose at the international community by picking and choosing at its own discretion which laws it will observe and which ones it will ignore. As reported in our last quarterly investor letter, in early October we obtained from a Ghanaian court an order detaining an Argentine naval training vessel in order to secure judgments against Argentina rendered in the U.S. courts. Argentina appealed to the Tribunal for the Law of the Sea Convention (yes, there is actually such a body) in Hamburg, which in mid-December ordered Ghana to release the ship. Before the Ghanaian courts could even consider whether the Tribunal’s ruling should be given effect in that country – a question as to which there was considerable doubt, given that Ghana has enacted no substantive law providing that orders of relief from this body supervene the decisions of the Ghanaian courts – Argentina grabbed its ship and skipped town.
Sounds like Singer liked having that ship. No wonder Argentina’s President decided to leave her private plane behind and leased a plane for her latest world tour — Singer’s out for blood.