Argentina Default No Obstacle to Schroders Conquering All

Pablo Albina, Schroders Plc’s head of Latin America fixed income, says investors who abandoned Argentina’s bonds after the nation defaulted are missing out.

“People think the end of the world is near for Argentina but that’s myopic thinking,” the 45-year-old money manager said in a telephone interview from his office in downtown Buenos Aires. “We’re very optimistic.”

His results provide plenty of reason for his enthusiasm. The Schroder Capital Renta Fija fund, which manages the equivalent of $100 million, has returned 50 percent in peso terms this year, the most among the 50 biggest debt funds based in Argentina, data compiled by Bloomberg show. That would imply a 15 percent return in dollars, based on the official exchange rate, according to data compiled by Bloomberg.

Albina has sidestepped Argentina’s debt crisis by buying debt securities that are shielded from the U.S. court order that plunged the country into its second default in 13 years. They include dollar-denominated government bonds issued under local law as well as notes sold by the biggest companies such as YPF SA and Pan American Energy LLC.

Many investors have shied away from Argentina’s securities governed by local law because of the risk they may be paid in pesos instead of dollars. To Albina, that’s better than not getting paid at all, which is the predicament that creditors of foreign law bonds have been in since July after President Cristina Fernandez de Kirchner’s administration refused to negotiate with holders of decade-old unpaid debts.

Blocked Payment

The nation’s benchmark local-law bonds due 2017 have returned 6.2 percent this year, versus a gain of 0.9 percent for similar-maturity debt issued under New York legislation. The securities rose 0.05 cent today to 89.29 cents on the dollar as of 1:45 p.m. in New York.

Globally, Schroders manages $464 billion, according to its website.

U.S. District Judge Thomas Griesa has blocked Argentina payments of $539 million on its 2033 bonds in July and of $161 million on notes due 2038 because the government didn’t comply with a court order to pay holders of defaulted debt led by billionaire hedge fund manager Paul Singer.

At the same time, debt service for local government bonds and corporate debt have continued uninterrupted. Griesa has also allowed payments on $446 million of dollar-denominated local law debt from restructured securities.

‘Only Class’

“The willingness to pay is unshakable and the ability to pay remains adequate,” Daniel Freifeld, co-founder of Callaway Capital Management LLC, said in a telephone interview from Washington. The local law bonds are the “only class of Argentine bonds that has those characteristics.”

Fernandez and her officials say that Argentina hasn’t defaulted because it deposited the necessary funds to pay its restructured bonds and it is up to creditors to demand their money sitting at the central bank from Judge Griesa.

A group of funds including George Soros’s Quantum Partners LP and Kyle Bass’s Hayman Capital Management LP asked a London judge to protect a 1.3 billion euro ($1.6 billion) investment in Argentine bonds from New York lawsuits yesterday.

Argentina’s bonds issued under local legislation have historically yielded more than New York law bonds until the gap reversed in October 2012, when a U.S. appeals court upheld Griesa’s ruling that the nation has to pay defaulted bondholders whenever it pays restructured debt.

‘Impartial Rulings’

Local law debt is usually seen as riskier than bonds issued under U.S. or U.K. legislation because foreign investors may be more vulnerable if governments or companies change the terms of the contracts, according to David Tawil, president of hedge fund Maglan Capital LP.

“It’s unsettling for investors that come from a locale where the law is much more developed and the courts can be relied upon for impartial rulings,” said Tawil, who invests in Madalena Energy Inc., which has operations in Argentina.

A concern for investors in Argentine local-law bonds is that it would be easier for the government to pay the notes in pesos if it runs out of foreign currency. The country’s international reserves are down $24.5 billion from their high of $52.6 billion in January 2011.

Albina’s fund, which has returned 52 percent in the past 12 months, is also beating inflation. Consumer prices have risen an estimated 39.5 percent in the past year, according to Buenos Aires-based research firm Elypsis.

The expiration of a key bond clause on Dec. 31 may help restart negotiations with creditors. Economy Minister Axel Kicillof said conditions for negotiations will improve by year-end in an interview published yesterday in Mexico’s La Jornada.

“The default will have a reasonable solution once the right conditions are in place,” Albina said. “We see good prospects for the country and a big rally coming up in the next few months.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE