US judge wants holdout investors to take Argentina’s 75% settlement offer
An American judge is considering lifting sanctions barring Argentina from accessing capital markets, after it offered a $6.5 billion settlement to hold-out investors (“vulture funds”), representing 75 per cent of Argentina’s original debt.
According to reports from financial reforms organization Jubilee USA Network, US District Judge Thomas Griesa ordered hold-out investors to explain why various sanctions on Argentina should not be lifted.
Two hold out funds, Dart Management and Montreux Equity Partners, accepted Argentina’s offer. However the deal can’t move forward until four other principle funds accept it. The remaining hold-outs are Elliott Management, Aurelius Capital Management, Davidson Kempner Capital Management and Bracebridge Capital.
Eric LeCompte, head of Jubilee USA and a UN debt expert who tracked the case for six years, expressed surprise that the hedge funds were not accepting the offer although Judge Griesa was “appropriately” pushing them to accept it.
“These funds are poised to make a 1000 per cent profit after buying the debt for pennies on the dollar. It’s baffling why they wouldn’t accept such a deal and Judge Griesa is starting to push them to take it,” he was quoted as saying.
The longstanding case comes from Argentina’s debt default in 2001. Hedge funds bought the country’s debt cheaply and later refused a settlement package by Argentina to its investors which would allow the country restructure its debts.
Refusing the settlement package which was accepted by 92 per cent of Argentina’s investors, the hedge funds led by NML capital, then sued Argentina in American courts, seeking a court order to compel Argentina to pay them in full before paying its other investors, which the funds won.
In 2012, a US Second District Court judge ordered Argentina to pay NML Capital and other hold-outs in full (about $1.33 billion)
“Vulture funds”, nicknamed so for preying on poor and heavily indebted countries, are known for cheaply buying debts of countries in financial turmoil, and suing to make profits of over 1,000 per cent or for at least the full value of the debt.
NML Capital bought its bonds a year before Argentina’s restructuring of its $100 billion sovereign debt.
Argentina has had the support of the International Monetary Fund (IMF), the World Bank and some other organizations and governments who argue that this practice by hedge funds is inimical to debt structuring efforts of countries in debt distress.
“We need financial structures in place to protect countries from this kind of behaviour,” LeCompte said.
NML Capital’s efforts to exact payment from Argentina and seize assets, resulted in the detention of an Argentine frigate, the Libertad, at the Tema port, after the hedge fund secured an injunction from Ghanaian courts.
The vessel was later allowed to head home to Argentina, after a ruling by the International Tribunal for the Law of the Sea. Ghana’s Supreme Court also condemned the seizure of the ship.
By Emmanuel Odonkor