“The Fund-the vulture” from the US made billions on Argentine default


15 years of negotiations

Hedge Fund Elliott following the restructuring of Argentine debt will receive the amount to more than triple the nominal value of owned shares $2.28 billion versus $617 million, Bloomberg reported citing data of the Ministry of Finance of Argentina.

The aggregate amount of claims Elliott to Argentina, including accrued interest of $3,039 billion, follows from the documents submitted to the court on February 29, Deputy Minister of Finance of Argentina Santiago Bausili. In this day of Buenos Aires have reached agreement on repayment of debts before foreign creditors.

Some of the parameters of the agreement has yet to be promulgated, in particular, is unknown the exact amount paid by the singer for Argentine bonds, but Bloomberg writes about 369% yield.

Income singer agreed at the end of February, was about three times the amount that the investor would have received, accept it the terms of restructuring proposed by Buenos Aires in 2005, estimated the Argentine brokerage Agency Puente. The deal, which the singer then rejected, was estimated at 118% of the nominal value of the bonds as of Tuesday, March 1, says a leading expert Alejo Puente Costa.

Argentina has agreed to pay the singer’s Fund, Bracebridge Capital and two other hedge funds $4,65 billion Deal still must be approved by Congress. In addition, its implementation will require from the Republic of the abolition of some laws. Basically, the amount of the payment consists of $4.4 bn, i.e. 75% of $5.9 billion — the amount of principal and accrued interest claimed by the creditors in the court of new York, as well as $235 million that will be paid to the holders of securities in other jurisdictions. According to documents presented in court the Finance Ministry of Argentina, the aggregate amount of claims filed only in court in new York ($5.9 billion), the body consists of debt ($1.2 billion) and accrued interest ($4.7 billion).

Hedge Fund, Bracebridge, owned by investor Nancy Zimmerman, the agreement with Argentina will bring even more than Fund Elliott. According to the Ministry of Finance, Bracebridge will receive eight times face value ($120 million) Fund owned Argentine bonds.

In total, creditors led by hedge Fund Elliott, owned by American billionaire Paul Singer, has achieved a return on debt Buenos Aires about 15 years. Investors refused to participate in two rounds of restructuring of the Argentine obligations in 2005 and 2010. Then the authorities made the exchange of frozen bonds for new ones with 70-percent write-offs.

The holders of 92% of the papers agreed on the conditions of Buenos Aires. But the American hedge funds owning 8% bonds, began to seek the payment of debts in a judicial order. In 2012, a court in the USA ordered Buenos Aires to meet the obligations. In July 2014, the rating agencies and the U.S. court appointed mediator has announced the immediate default of the country.

Of debt into debt

The settlement of the dispute with the hedge funds will allow Argentina to return to international debt markets, access to which the country lost after the default in 2001. Their duty to the investors of Buenos Aires is going to cover using the largest among the emerging economies over the last 20 years a bond issue of $15 billion, reports the FT citing the Deputy Finance Minister Alfonso Prat-gay. The surplus will be directed to cover the state budget deficit.

The main question is at what rate Argentina will take on the international market and also from investors who want to invest in the country which over the past 200 years made eight defaults. With such a large release is unlikely the country will take a less than 8%, says the FT head-emerging markets the world’s largest Fund Manager BlackRock’s Sergio Trigo Paz. “We are pleased that Argentina failed to reach an agreement with bondholders, — quotes its publication. But anyone who is planning such a large issue, you should be ready for higher rates”. One of European investment funds has told the publication that would be willing to buy Argentine bonds only if rate of return will double.

Greg Saichin, managing Director of “emerging markets — fixed income” within the management company Allianz Global Investors, said that based on the size of the proposed loan to Argentina would split your drawing into multiple rounds. “Argentina reformist government that many people from wall street, they know what you’re doing, but nevertheless they failed to raise the national economy, said Sachin. — If they are at a time will provide the market with so many bonds, they may face serious risks. I would recommend them to start with issue volume of $8 billion”.

Until December 2015 the presidency for eight years was occupied by Cristina Fernandez de Kirchner, and before that another four and a half years the President was her husband Nestor Kirchner. Both flatly refused to satisfy the demands of Elliot and other “vulture funds”. With the election at the end of last year the President of Argentina Mauricio Macri market indicators went up and the yield on Argentine bonds fell, with transcendent values. The yield of Bonar 2024 bonds, which can be regarded as the benchmark for ten-year securities, now is 7.9%.

From the beginning, the emerging economies did not make large borrowings in the debt market. The reason for this is high interest rates, which is accompanied by a strengthening dollar and weakening appetite for risky entities for investment. Developing countries in 2016 issued bonds in hard currency amounting to $19 billion versus $25 billion for the same period a year earlier amid a lack in the debt market of such major players as Russia and Turkey.

With the participation of George Peremitina

How much time do you need for a return of confidence in sovereign bonds after the default

According to estimates conducted by researchers at Princeton University and the Massachusetts Institute of technology, in 1980-e the years between the announcement of the country’s default on sovereign bonds and the return on the debt market took place on average 4.5 years. In the 1990s, this period was reduced to 2.9 years. Studies of the inter-American development Bank show the data by region: European countries and States in the Asia-Pacific region out of five years, Latin American — six years, the middle East and Africa — for 12 years.

So, in 1994, after a series of high-profile political murders from Mexico was a significant outflow of foreign investment, resulting in increased trade deficit, a depreciation of the peso. The collapse of the national currency made it impossible to indexation of government bonds to the dollar, making Mexico briefly lost access to international capital market. In 1995, the country received international loans to $50 billion and has returned to the market borrowings. Already in 1996, Mexico issued bonds for a record $16 billion.

Another example from Latin America: in December 2008 Ecuador refused to pay a debt of $3.2 billion: the country’s President Rafael Correa said that the payment is “illegal and immoral”, and called the lenders “monsters”. Then Ecuador for almost six years did not have access to the international capital market. In June 2014, the Latin American country sold ten-year sovereign bonds of $2 billion at a yield of 7.95%. This was preceded by a series of meetings with investors in London, Boston, Los Angeles and new York, conducted through Crédit Suisse and Citigroup.

Due to the financial crisis and large public debt in 2010, Greece lost access to international capital market, although the default took place only two years later. Return to the lending markets took place in the spring of 2014 — then the Greek government sold five-year bonds at a yield of 4.95% for $4.2 billion While the credit rating of Greece then continued to stay in “junk” territory.