Bloomberg News

Evading Singer’s Dragnet Means $880,000 Flight: Argentina Credit

January 10, 2013

Argentine President Cristina Fernandez de Kirchner

Argentine President Cristina Fernandez de Kirchner. Photographer: Michele Tantussi/Bloomberg

To avoid the nation’s creditors, Argentine President Cristina Fernandez de Kirchner is spending $880,000 to fly to Indonesia.

Fernandez is taking a chartered flight today instead of her presidential plane, a Boeing 757 named Tango 01, for her first official trip to Asia since Ghana detained an Argentine navy ship in October at the request of bondholders seeking full payment from its $95 billion default in 2001.

Led by billionaire hedge-fund manager Paul Singer, the so- called holdout creditors’ attempts over the past decade to seize Argentine assets have kept South America’s second-largest economy from borrowing money internationally and pushed yields on its dollar bonds to 12.4 percent -- the highest among major emerging markets. While an international tribunal ordered Ghana to free the frigate, investors that Fernandez has dubbed “vultures” will continue to pursue Argentina as they press their demands in court, Caracas Capital Markets said.

“It’s a cautionary tale for countries who borrow $100 billion and try not to pay it back,” Russell Dallen, head of brokerage firm Caracas Capital, said in a telephone interview. “There are consequences for countries, the same as people. You don’t default on your mortgage and get to keep your house too.”

The decision to charter the jet comes after a U.S. court on Nov. 28 ruled Argentina must pay creditors including Singer’s Elliot Management Corp. the $1.3 billion of interest and principal it owes. The order was delayed until a Feb. 27 appeals court hearing.

‘Vulture Funds’

Fernandez won’t use Tango 01 “because the aggressive posture the vulture funds have against the nation make it highly likely they would attempt to place claims or injunctions over the aircraft,” according to a statement posted Jan. 7 on the presidential website.

The chartered plane from Chapman Freeborn, a company based at Gatwick Airport, 28 miles (45 kilometers) south of London, will cost 20 percent more than using her own presidential aircraft, according to the statement. Fernandez will use the charter for her visit to Indonesia, Vietnam and the United Arab Emirates, where she will promote trade and business relations.

Economy Ministry press official Norma Madeo and Peter Truell, a spokesman for NML, didn’t respond to e-mails from Bloomberg seeking comment.

Ship Returns

The holdout creditors obtained a court order to detain the ARA Libertad training vessel in Ghana on Oct. 3. About $4 million in costs, including port fees, crew maintenance and salaries, were run up before the ship was allowed to set sail 76 days later after a ruling by the Hamburg-based International Tribunal for the Law of the Sea, according to estimates published in newspaper La Nacion on Oct. 3.

Yesterday, Fernandez flew her cabinet to the seaside city of Mar del Plata, which is at the height of the tourist season, to celebrate the arrival of the frigate at its port. Pro- government groups distributed fliers that read “Cristina Captain” with an illustration of her piloting the ship.

“They post their own posters: ‘Rah, rah, look! Cristina brought the ship back,’ which is great, but, this was self- inflicted,” Hans Humes, president of Greylock Capital Management LLC, said at a Jan. 7 seminar held by the Emerging Markets Traders Association in New York. “This country has willfully disregarded every international norm of behavior that it doesn’t consider to be convenient for them politically.”

Debt Restructurings

Elliott Management’s NML Capital Ltd. and other hedge funds including EM Ltd., which is run by billionaire Kenneth Dart, are seeking payment on bonds that weren’t swapped in two restructurings in 2005 and 2010. Investors owning about 94 percent of defaulted bonds accepted the offers of 30 cents on the dollar.

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The funds have tried to seize assets from Argentina’s national pensions fund and state-owned telecommunications and energy companies, according to Eugenio Bruno, a lawyer at Buenos Aires-based law firm Estudio Garrido. They also tried to ground the Tango 01 plane during a maintenance trip to the U.S.

The commercial value of a Boeing 757-200 was $8.8 million to $13.6 million in the third quarter of last year, according to Avitas Inc., a Chantilly, Virginia-based adviser to the aircraft industry.

The holdouts also tried to seize money deposited in New York by Argentina’s central bank and state-controlled Banco Hipotecario SA and Banco de La Nacion Argentina, according to Estudio Garrido.

‘More Cautious’

Renting a plane for Fernandez’s trip shows “Argentina is being more cautious and trying to avoid going through a situation similar to what happened with the frigate, which was an embarrassment,” said Daniel Kerner, an analyst at Eurasia Group in Buenos Aires.

The pending claims by holdouts have helped make Argentina’s borrowing costs the highest in emerging markets after Belize, even as the third-biggest soybean exporter profited from record grain prices last year.

Fernandez has also failed to reach an accord on $8.9 billion of debt owed to the Paris Club group of creditor nations and is locked in a dispute with the International Monetary Fund, which has threatened to censure Argentina if it doesn’t improve its reporting of inflation and other data.

While independent economists estimate annual inflation at 25 percent, the government puts it at less than half that rate. Consumer prices rose 10.6 percent in November from a year earlier, according to the national statistics institute.

Yield Premium

The extra yield investors demand to hold Argentine government dollar bonds instead of Treasuries narrowed five basis points, or 0.05 percentage point, to 1,032 basis points at 11:45 a.m. in New York, according to JPMorgan Chase & Co.

The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell 51 basis points to 1,688 basis points, according to data compiled by Bloomberg. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

The peso fell 0.1 percent to 4.9388 per dollar.

While none of the attempts to seize Argentine assets have prospered, Singer has come closer to extracting a payout after U.S. district court Judge Thomas Griesa ruled the country must pay holdouts the full amount they are owed when they make payments to owners of restructured bonds.

“The looming problem for Argentina is this February action,” Dallen said. “People don’t know what’s going to happen and capital flees uncertainty.”

To contact the reporter on this story: Camila Russo in Buenos Aires at crusso15@bloomberg.net

To contact the editors responsible for this story: Michael Tsang at mtsang1@bloomberg.net; David Papadopoulos at papadopoulos@bloomberg.net


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