Paul Singer made it clear he was not going to take no for an answer from Argentina when he had a Ghanaian Court seize the country’s naval vessel, the ARA Libertad last month.
Since then, most of the drama has played out off the high seas and in a New York Court.
Last week, Judge Griesa ordered Argentina to pay Singer’s hedge fund Elliott Capital the $1.3 billion that it’s owed after an investment in Argentine bonds in 2001. The bonds mature in 2017.
Most hedge funds that made that same investment restructured with Argentina, taking haircuts of up to 70% — but not Singer. He wants the full amount, and for now, the Court says he should get his payments along with other restructured bondholders starting in December.
There’s still a few legal moves Argentina can make to evade the order, and President Cristina Fernandez de Kirchner has said that she will not pay Singer or any of the other “vulture funds” looking for money.
In the meantime, the yield on the Argentine bonds Singer holds has soared (chart below, from Bloomberg) while the price of those bonds has plummeted.
Dollar bonds due 2017 have tumbled 5.6 cents since Singer’s Elliott Management Corp. on Nov. 6 sought an expedited ruling on whether Argentina must pay creditors of defaulted debt when it makes interest payments on more than $3 billion of restructured bonds next month. The notes, issued under New York law, fell to a record 74.71 cents on Nov. 9 after Judge Thomas Griesa said he will decide by Dec. 1 how much Argentina needs to pay so-called holdouts, the day before $42 million of interest comes due.
Photo: Bloomberg, Business Insider
This is dramatic, and according to a Citi research note on the issue, it’s also probably not going anywhere.
We find it difficult to imagine Cristina Kirchner stating that she is willing to concede and pay the holdouts (effectively a defeat) if the appeals process turns adverse. Furthermore, at this juncture, Cristina’s entire political focus is elsewhere. On the one hand, the country just went through the largest anti-government demonstrations since the return of Democracy almost 30 years ago. Despite this, from the government’s perspective, at this juncture they seem to be single-mindedly focused on what they have labelled as 7D. December 7 is the date the government interprets that the media law approved in 2009 will go into effect.
The authorities have turned the date into a key turning point when conflict between powers (the media vs. the executive) gets resolved. The Fernandez de Kirchner camp has made this a foundational date. Therefore, while the political focus is on manoeuvring for this event, we find it difficult to imagine Cristina Kirchner making it explicit that they choose to signal that Argentina could settle with the holdouts (a sign of weakness, unacceptable to the president) over running the risk of a technical default.
So yeah, it’s either stand down or default, and we know Argentina isn’t afraid of the latter at all.
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