Paul Singer has had it.
The billionaire investor leading a group of hedge fund managers suing Argentina over a decade-old debt has finally filed to add the claims of over 500 more creditors on top of his original lawsuit.
Consider this Singer’s, ‘that is it!’ moment.
Argentina was declared technically in default last summer for ignoring a US Judge’s ruling to pay Singer and his cohorts (known collectively as NML) over $US1.7 billion in sovereign debt dating back to its last default.
One of the excuses Argentina used to explain its recalcitrance was that if it paid NML, it was opening itself up to claims from hundreds more investors because of something called the RUFO clause.
If RUFO kicked in, instead of being on the hook for $US1.7 billion, Argentina would be on the hook for around $US5.3 billion according to its own law. That’s quite a price tag for a country whose Central Bank is usually holding under $US30 billion in cash. Most observers were sceptical about this reasoning, but hey — Argentina stood by it.
The thing is, though, RUFO expired in January 2015.
And since that expiration, Argentina has made absolutely no move toward payment. The country tried to circumvent the most painful consequence of its (technical) default by trying to sell bonds through a bunch of Wall Street banks. The first time it didn’t work at all, and then a second time it sort of worked through Deutsche Bank (NML is still arguing about that sale in Court).
Through all of this, negotiations with NML haven’t been going well. Actually, they haven’t been going at all.
“If Argentina is not negotiating, these plaintiffs need to have their rights confirmed,” said NML lawyer Robert Cohen in Court on Friday.
On top of all that you’ve got the Argentine elections in the fall. Investors have been hoping that, no matter who wins, there would be a more pro-business, settlement-ready government in office.
Unfortunately, it looks like candidates from all sides are ready to let NML wait a little for payment once they’re in office.
Daniel Scioli, the chosen successor of current President Cristina Fernandez, said that he would aim to pay about 70% of what Singer and his crew want once negotiations with his office started.
Even the more pro-business candidate, Mauricio Macri, said that he wouldn’t settle with holdouts right away.
Naturally, this is not what Paul Singer wants to hear. So at this point, why not add a few billion dollars to Argentina’s tab. It might light a fire under them, so to speak.
Meanwhile, Argentina’s economy is in a dangerous place. It’s racking up debt at a rate unseen since its last default in 2001/2002. Revenues increased in Q1 2015 compared to the same time in 2014, but expenditures and interest payments have increased by far more.
As economist Claudio Loser of Centennial Group pointed out in a recent note, these calculations don’t include any payments to NML or other creditors either.
“These numbers mean that during the first quarter, the overall financial deficit of the public sector increased by 206 per cent from the first quarter of 2014,” Loser wrote. “If these numbers are projected for the year, Argentina would incur in an overall deficit of about 6 per cent of GDP, the highest in the region after Venezuela, on the basis of a nominal increase GDP of about 30 per cent. The ratio would be much higher if one believes the official numbers of inflation and of real growth.”
He continued [emphasis ours]: “This is a terrible situation for a country that is in dire financial circumstances. Moreover, it would be the worst fiscal performance in the last twenty years on a cash basis, even worse than 2001-03, when Argentina declared unilateral default.”
In short, now is not the time for Argentina to be adding more to its tab.
But here we are.