Katia Porzecanski and Camila Russo New York and Buenos Aires
LESS than a month after Argentina defaulted for the second time in 13 years, George Soros has suddenly emerged as a key rival of fellow billionaire Paul Singer in the legal fight over the nation’s debt.
According to court documents filed in London last week, Quantum Partners, a fund managed by Soros’s family office, has joined a group of investors suing bond trustee Bank of New York Mellon (BNY Mellon) for failing to distribute e226 million (R3.19 billion) of interest payments on Argentine debt. The group, which also includes Kyle Bass’s Hayman Capital Management, owns more than e1.3bn of euro-denominated bonds, court documents show.
At the crux of the dispute is a US court ruling won by Singer’s Elliott Management, which blocked Argentina from paying its overseas debt until the country compensated him and other holders of debt from its 2001 default.
While the ruling prevented BNY Mellon from transferring any money deposited by Argentina until Singer was paid, it should not apply to bonds governed by jurisdictions outside of the US, the group said.
“The trustee isn’t acting in its official capacity as trustee,” Bass said. “Our interest payment is governed by UK law, which hasn’t ruled on this. Until there’s a similar injunction in the UK, they owe us our interest payments.”
Michael Vachon, a spokesman for Soros, and Stephen Spruiell, a spokesman for Elliott, did not return e-mails seeking comment.
Singer bought Argentine bonds before its $95bn (R1 trillion) default in 2001.
After a more than decade-long legal pursuit for full repayment, Singer and other creditors who refused to accept losses of 70 percent to provide Argentina with debt relief are now owed $1.5bn as a result of the US court orders.
Soros has invested in the South American country since as early as 1991, when he helped purchase Argentine real estate company IRSA Inversiones y Representaciones.
On June 26, Argentina deposited $539 million into an account at BNY Mellon for an interest payment on its foreign- currency bonds due four days later – without also depositing the amount owed to the holdout creditors led by Singer.
US District Judge Thomas Griesa called the payment “illegal” and prohibited BNY Mellon from paying bondholders.
A default was triggered on July 30, after Argentina failed to reach a settlement with the holdouts by the end of a grace period for making the interest payments. The money remains at BNY Mellon’s account in Buenos Aires.
In the UK lawsuit, Soros, Bass, Knighthead Capital Management and RGY Investments said BNY Mellon’s London-based unit acted “consistently to protect its own interests, without reference to the interests of the beneficiaries”, according to the documents.
The group asked the London court to require BNY Mellon to disburse the money to holders of Argentina’s euro-denominated bonds and prevent the bank from doing anything else with the cash.
“The suit is without merit,” Ron Gruendl, a spokesman for BNY Mellon, said on Friday. “BNY Mellon has consistently followed the binding court orders that govern its actions.”
A separate group of investors of euro-denominated bonds plans on appealing Griesa’s ruling in New York. Citigroup’s Argentina unit is also appealing a decision by the judge that bars it from distributing payments on securities issued under Argentine law.
Fintech Advisory, a hedge fund run by David Martinez, who has litigated against Singer in other cases, said last week that it would also appeal Griesa’s ruling.
“Clearly there’s a process of trying to carve out legal and local law” from the ruling, said Siobhan Morden, the head of Latin America fixed-income strategy at Jefferies Group. “The euro bondholders are aggressively trying to separate UK law from this expansive injunction.” – Bloomberg