Argentina’s battle with US hedge-fund mogul Paul Singer is turning into a new cold war.
Just ahead of Argentina’s possible default at the end of this month, the embattled country is looking to Russia and China in what appears to be an attempt to snub the US courts and “vulture funds” like Singer’s that demand Argentina repay its debt in full.
After warning the international community its legal battle with Singer and other holdout bondholders is a political one, Argentine President Cristina Kirchner has been busy lining up trade deals, investments and credit lines from the two superpowers to help weather any fallout from a potential default.
Kirchner bragged about the new international cooperation on Twitter over the weekend. Most significantly, Argentina is close to inking an $11 billion currency swap deal with China to bolster the dwindling currency reservesit uses to pay creditors and support the Argentine peso.
The Singer camp “did not see that coming,” said a source familiar with the litigation. “If Argentina thinks Russia and China are going to help it have a soft landing, then that changes the equation for the country.”
Argentina’s refusal to pay Singer and his hedgie cohorts $1.65 billion on defaulted Argentine debt they own has put the country on the precipice of defaulting on some additional $25 billion in restructured debt.
Manhattan federal judge Thomas Griesa ordered Argentina to pay the holdouts — who want face value of the bonds plus interest — at the same time it pays the exchange bondholders who agreed to a debt swap worth about 33 cents on the dollar.
An appeals court affirmed the decision, and the US Supreme Court refused to hear the case, cutting off further legal recourse for Kirchner’s government. The country has until July 30 to make a payment to the exchange bondholders — or risk being in a technical default. With the clock ticking, Argentine officials, including Economy Minister Axel Kicillof, finally agreed to meet twice with a court-appointed mediator the week of July 7.
But they refused to negotiate with Singer’s reps or even sit in the same room. Instead, they pressed their case for a reinstatement of a court stay until they can negotiate a settlement with all of their bondholders.
The stay was lifted when the US Supreme Court declined to hear Argentina’s appeal Singer opposed the stay — which was lifted after Argentina exhausted its appeals — but said he would reconsider if reconsider if Argentina actually sits down at the negotiating table. The country says it won’t negotiate until the stay is reinstated.
Until this week, many investors believed Argentina would eventually pay up. Dan Loeb, another hedge-fund titanand Singer pal, told his investors Friday that he began investing in Argentine sovereign debt last quarter, saying he expected a deal to be struck by year-end. That’s when a requirement to pay exchange bondholders as much as Singer — which Argentina estimates at an additional $120 billion — expires.
But no new negotiations have been scheduled, leading to mounting skepticism that Argentina and Singer would be able to come to a compromise before the July 30 deadline. Without a stay, Argentine credit default swap owners are likely to force a default.