Was This Hedge Fund Billionaire's Epic Argentina Clash Worth It?

Updated on
  • Leading presidential candidates signal they'd seek debt deal
  • Argentina has been fighting defaulted-debt creditors since '01

When hedge-fund billionaire Paul Singer first sued Argentina over its defaulted bonds in 2003, he could hardly have expected to be mired in the same tussle 12 years later.

Now, with the main candidates in Argentina’s presidential elections on Sunday signaling that they’d be willing to settle the long and acrimonious dispute, Singer and other holdout creditors are potentially the closest they’ve ever been to getting paid.

Paul Singer

Photographer: Jacob Kepler/Bloomberg

“Some of the uncertainty will be resolved soon enough,” said Yacov Arnopolin, a money manager at Goldman Sachs Asset Management, which oversees about $36 billion in emerging-market debt.

It’s virtually impossible to know precisely how much Singer & Co. will extract from Argentina or what kind of profit his hedge-fund clients will reap in the end. Yet the messy and protracted nature of the entanglement ultimately raises the question: was it was really worth it for either side?

Elliott Management, Singer’s hedge fund outfit, has made hundreds of legal filings in the intervening years, incurring untold legal costs and countless hours of research. It’s also undertaken aggressive and unusual steps wherever and whenever it could -- including briefly seizing an Argentine naval ship in Ghana -- to pressure the country into paying what it owed.

“Vulture” Funds

For Argentina, the dispute has cost the country access to international debt markets, which has compelled it to adopt policies that have caused runaway inflation and plunged the nation into its second default in 13 years.

President Cristina Fernandez de Kirchner, who’s banned from seeking a third term, has been strident in refusing to negotiate. She’s dubbed Singer and other hedge funds “vultures” and ignored a U.S. court ruling that bans the country from honoring other foreign debt obligations until it repays the creditors. Argentina, described by federal judges as a “uniquely recalcitrant debtor,” even faces sanctions for its failure to comply with U.S. law.

Stephen Spruiell, an Elliott spokesman, declined to comment on the litigation or the elections, and a presidential spokesman didn’t return an e-mail seeking comment.

Singer, 71, has said publicly that he would accept a discount and payment in bonds.

“The next government would hopefully see the benefits to the people of Argentina of getting rid of this problem,” he said July 15 at the Delivering Alpha conference in New York. “If they issued paper, settled the debt, the impact on the stock market, the impact on economic growth, inflation would be electrifyingly positive.”

Cautious Optimism

When asked if he expects the next president to change Argentina’s tone, Singer said he has “a hope, not an expectation.”

Presidential frontrunner Daniel Scioli and opposition candidate Mauricio Macri have both acknowledged the need to find a solution to break Argentina’s impasse with creditors, without providing specifics on timing.

Source: Central Bank of Argentina

Argentina is struggling with inflation at about 26 percent, falling prices for its biggest exports, widening fiscal and trade deficits, and an overvalued official exchange rate. At $27.4 billion, central bank reserves -- which the government uses to pay debt and shore up the the peso -- are close to their lowest in nine years. In the unregulated black market, the peso has fallen 13 percent this year to 15.88 pesos per dollar.

Patrick Esteruelas, a sovereign analyst at Emso Partners Ltd., estimates the amount of cash the central bank can easily access is actually close to zero.

Dead End?

“This government has literally run out of road,” he said in an interview.

Settling the decade-long debt dispute would enable Argentina to get the financing it desperately needs to make more significant changes to the economy, he said.

For some creditors, the payout could be substantial, according to Exotix Partners LLP. Those who bought the defaulted dollar bonds three years ago, when it was trading at about 20 cents to the dollar, stand to be rewarded with a return in excess of 1,600 percent in the event of a settlement, said London-based economist Stuart Culverhouse.

The securities that Argentina issued as part of its debt restructurings, which are now in default, have also surged 18 percent this year as optimism increased a settlement was on the horizon.

And compared with all the other economic problems the next president will have to deal with, resolving the protracted debt dispute should be relatively easy. But for Argentina to agree to a settlement, Fernandez’s successor will need to be able to claim victory over its long-time antagonists, according to Alejandro Catterberg, director of Argentine polling company Poliarquia Consultores.

“It will be much easier to negotiate with the holdouts,” Catterberg, director of Argentine polling company Poliarquia, said in an Oct. 16 meeting organized by trade group EMTA in New York. But from a PR perspective, “the holdouts will have to understand that they’ll have to concede.”