A couple of consecutive judicial defeats can take the already Argentina’s precarious finances on the brink of the abyss.
The country’s dollar bonds plunged on Wednesday after courts in the United States and the United Kingdom sided with investors in a series of lawsuits, each demanding payments linked to growth-linked securities and the nationalization of an oil company a decade ago.
The sentences are just the latest hurdle for Argentina, which is fighting for control 100% inflation, while foreign exchange reserves dwindle, a drought destroys export crops and presidential elections are looming in October.
According to Sebastián Maril, managing director of the Buenos Aires consultancy Latam AdvisorsThis is one of those cases where history repeats itself. Although the courts have not yet disclosed the details of the amount to be paid by Argentina in each case, Maril expects the deals to run into the billions of dollars.
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The two cases are an indication that Argentina’s long history of legal troubles is far from over. In the last two decades, the government has been forced to pay at least US$17 billion in compensation investors in expropriated companies and holders of defaulted bonds, Maril calculates, and wonders what could have been done to finance education, roads or the electricity grid since the year 2000 with US$17 billion.
Argentine bonds widened their losses on Wednesday following the latest UK ruling, which holds the nation responsible for losses in so-called “GDP coupons” after the country changed its method of calculating growth.
A third US trial will take place later this year. by a similar dispute over Argentine dollar-denominated bonds, led by the hedge fund Aurelius Capital Management.
The nation’s debt due 2029 fell as low as 1.6 cents, to about 26 cents on the dollar, the lowest level in a week.
This deep crisis puts at stake the situation of the Administration that assumes power when the Argentines go to the polls in October. That government will inherit both potential legal payments and US$65 billion. in foreign bonds that begin to mature in 2025.
“Where the new Administration will get the hard currency cash to meet these legal claims is an open question, and this morning some aggressive traders shoot first and ask questions later”according to a note from analysts at Portfolio Personal Inversiones led by Pedro Siaba Serrate.
Argentina’s strategy on lawsuits
Lawyers representing the Argentine government say they will request authorization to appeal UK court ruling on euro GDP vouchers case in the nation, according to an emailed statement from the Sullivan & Cromwell law firm.
Argentina “believes that the London tribunal misinterpreted the terms of the securities and intends to seek leave to appeal,” said Sullivan & Cromwell co-chairman Robert Giuffra Jr.
The country is no stranger to lengthy court battles, and Vice President Cristina Fernández de Kirchner is a staunch critic of what she calls “vulture funds.” Argentina spent more than a decade at odds with hedge funds, including Elliott Management Corp,. of Paul Singer, who seized a Navy ship as collateral to force the country to pay off defaulted bonds.
Former President Mauricio Macri finally ended up paying creditors around US$5 billion in 2016 to lift an injunction and pave the way for Argentina’s return to international capital markets.
“An appeal will only give time to Argentina, Therefore, the negotiations on the amount of compensation and the payment scheme will take place in the next Administration”, said Ramiro Blazquez, head of strategy at BancTrust & Co. in Buenos Aires.
LM
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