
Some hedge fund managers walk onto an Argentinian navy ship - proemeth
http://ftalphaville.ft.com/blog/2012/10/04/1191141/some-hedge-fund-managers-walk-onto-an-argentinian-navy-ship/
======
vm
Link bait title - the ship was seized in Ghana by a court-ordered injunction.
Highly unlikely that the investors walked on the boat.

Nevertheless, really interesting. In general, we expect a debt holder to try
to seize assets after the loan defaults. But I've never heard of a private
investment group going after a government.

Here is the response from the Argentine government:

 _The vulture funds have crossed a new limit in their attacks on the Argentine
Republic. The Frigate Libertad has been held in the Republic of Ghana over a
recourse presented by NML Group before the courts of that country. The
Argentine Foreign Ministry has already taken steps with the African nation’s
government to clear up the deception that the unscrupulous financiers have
mounted. That measure is in violation of the Vienna Convention on diplomatic
immunity.

The vulture fund NML has its headquarters in the Cayman Island, a fiscal lair
that it’s worth recalling is a colony of Great Britain, from which those who
don’t submit themselves to the laws of any jurisdiction operate and they’ve
been denounced both by the G-20 and the United Nations.

The NML Group belongs to international speculator Paul Singer and he is the
main financier of the lobby that operates in the courts and the Congress of
the United States with the name “ATFA” (Task Force Argentina) to damage our
country. Also, they disseminate false information for the use of some
Argentine monopolistic press media, with the goal of extorting Argentina in
order to obtain usurious profits from buying Argentine bonds for pennies
during the 2001 crisis and refusing to join the 93% of the investors that
agreed to the debt restructuring.

That group of lobbyists are the same that tried to harass the President during
her recent trip to the United States passing out aggressive fliers against the
presidential investiture. Another of its actions was to place a gigantic rat
in the doorway of the Argentine embassy in Washington when the anniversary of
our independence was being celebrated.

The Foreign Ministry reiterates that it is the decision of President Cristina
Fernández de Kirchner to not bow before the international and local attempts
at extortion that have been brought forth by the vulture funds and will
continue to denounce them in various forums such as the G-20, the United
Nations, CELAC, UNASUR and MERCOSUR, FATF and the other multilateral
organizations._

~~~
gadders
The Argentine government is getting desperate at the moment. They've started
fiddling their inflation figures, [1] and they've had to take steps to stop
people converting all their savings into dollars. On top of that, they've
added in some populist sabre rattling over the Falklands to try and distract
everyone.

[1] [http://www.rssenews.org.uk/2012/02/economist-magazine-
drops-...](http://www.rssenews.org.uk/2012/02/economist-magazine-drops-
official-argentine-inflation-figures/)

~~~
molmalo
Not exactly, it's long, but here I go...

Malvinas/Falklands has always been a national claim, that has been brought to
every possible international forum, for decades before the war in 1982, and of
course, also after the war... So, that's not news.

The current overall economic situation is not as terrible as it may seem from
outside. The main problem is that because of the high inflation, people try to
have their savings in other currencies, but the government put restrictions on
the amount of foreign money that can be bought. Sadly, tax evasion is
commonplace here, so, it's hard to prove the origin of the money, and thus
making it an impediment to buy US dollars.

But the overall situation is very complex. I have always said that the main
problem in Argentina is that culturally, Argentine businessmen always try to
make money selling a few products at a high price, instead of selling a lot of
products at smaller prices (scale economy). And there's no focus on trying to
change that mentality. That makes the local industry totally noncompetitive,
and thus, the government has to rely in protectionist policies to prevent
importers from flooding the local market with chinese products, that would
simply destroy the local jobs (it has happened before, in the '80s, then again
in the '90s).

As an example, you have some plain stupid policies, like having the
electronics factories in the furthest possible place (Tierra del Fuego, the
island just at the end of the continent!), far away from the consumption
centers, making the prices go up as they have to move the manufacturing parts
from Buenos Aires, to Tierra del Fuego, and then, the manufactured goods back
to Tierra del Fuego/Cordoba. That's 3100 miles by road!

This kind of policies render the commendable idea of helping the local
industry develop, totally useless because those industries will never be
competitive.

On the other hand, historically, the main source of wealth in this country has
always being agriculture. But sadly, since the 1800's, almost 80% of the
country has been in the hands of a few families. Currently, 2000 families own
almost all of the fields. And sadly, in the last 10 years, they stopped
producing a lot of products (wheat, fruits, livestock), replacing most of the
production with soybeans. That resulted in a huge increase in prices,
something unthinkable in a food-producing country like this.

That, added to the fact that historically those families operate usually
operate this way: They sell the products through a shell company in some tax
heaven country, thus declaring much lower earnings here (evading local taxes).
Of course, this kind of behavior is possible because of the ever-existing
corruption. Anyways, the money that they do bring here, is usually moved
anyway to offshore bank accounts (generally luxemburg, switzerland or
uruguay). Capital flight then becomes a common practice.

A few years ago, the government paid its debt to the IMF, and because it would
have to eventually pay most of the debt to the remaining creditors, and its
debt is adjusted by the inflation index they declare, they started forging
that index. They did it by printing money, used to internal payments to
government employees. Internally, as salaries were raised anually at the same
level of inflation, it didn't change much to the average people. But in the
long run, it affects business, as companies stop trusting the country, so they
stop investing here.

As the government had to afford some payments this year to finally complete
payments from the 2001 crisis (Boden 2012), they tried to stop this capital
flight, but instead of doing it gradually, they did it in a shockingly fast
way.

That generated a lot of social discontent in the middle classes. And of
course, people are just sick high levels of the corruption and impunity. Some
judges, just act as lackeys of the government, absolving government employees
involved in public corruption scandals, even when there's a lot of evidence to
make them go to prison.

And finally, Media conglomerates that have an enormous amount of power are
fighting its own war against the government, that again, even when they are
trying to implement an understandable law to replace one from the time of the
last dictatorship, the small amount of time given to split the "monopolies",
escalated everything.

Interestingly, even with all of this, the overall economic situation is not
that bad, people still have their jobs, there are not massive layouts as seen
in Europe, salaries grow at the same rate as inflation, compensating it.
People is still consuming and is expected that in 2013 the economy is growing
more, as Brazil gets better.

But the manner of this government is what makes people sick. They have a very
authoritarian way of imposing their agenda. It's like if for them, the end
justifies the means. Other parties, even when they could share some of the
objectives, prefer other ways to do things, but the opposition is totally
fragmented, so the officialism has all the way clear to act as they please.

-

To summarize:

\- Noncompetitive industry.

\- Wrong way of thinking about business (gain by product instead of by scale).

\- Unpatriotic landowners, masters in tax evasion

\- Widespread corruption.

\- Plain Stupid Policies

\- Flawed legal system, with corrupted judges

Makes a once-great country, a languishing country that every time it seems to
be about to stand again, it falls to the floor and ignites... just to start
from scratch again, like a recurring fenix.

Hope it helps to understand us a little bit more :)

As an anecdote, after the 2001 crisis, this country was literally broke, there
were no reserves, no money left, while, at the same time, the IMF was trying
to prove some 'new theories' and Argentina became the perfect experiment.
After rejecting a debt-exchange, default was the only option.

That's where this kind of vulture funds get in the picture. Their modus
operandi is simple: buy debt for cents (in this case, defaulted bonds),
knowing that a large country like Argentina, very rich in natural resources
would eventually recover, and then try to get paid the full price. Good luck
with that.

~~~
gadders
Thanks for such an informative reply. I hope one day Argentina gets a
government worthy of them :-)

I also hope to go fishing in Patagonia one day, but that's another story...

As an aside, are those wealthy families that own all the land of Spanish or
Welsh origin? I've heard there are a lot of Welsh immigants in Argentina.

~~~
molmalo
No problem, glad to be of help.

Most of them are from Spanish origin, "familias patricias" - "patrician
families" that were here and were somewhat powerful at the time when we were
still a colony, our independence in 1816 or in the following decades, during
the War of the Triple Alliance [1], and later at the Conquest of the
Desert[2].

However, during the last two decades, there's being a new wave of landowners,
mostly from USA, Italy, Chile, England, Israel, etc.

Benetton and Douglas Tompkins are two cases of foreigners buying LARGE amounts
of land. It has become a big problem, because they bought lots of strategic
locations (periglacial lands, river sources, estuaries, etc), and then blocked
access to water and other resources to people downriver, turning those lands
sterile, and then buying them at vile prices.

This was so severe, that a new law was made on February 2012 [3], limiting the
amount of land owned by foreign people/companies to 15% of the country.

You can see the amount of land owned by foreigners in this picture (spanish
annotations, sorry): [http://hosting11.imagecross.com/image-
hosting-46/1669TIERRAg...](http://hosting11.imagecross.com/image-
hosting-46/1669TIERRAgrande.jpg)

-

[1] A war between Paraguay vs an alliance of Argentina, Brazil and Uruguay
that resulted in the death of 90% of the Paraguayan people at the time. Very
Sad. <http://en.wikipedia.org/wiki/Paraguayan_War>

[2] Our equivalent to the Wild West Conquest, when Patagonia was finally
dominated. That's where your image of the Argentine "Gauchos" comes from ;)
<http://en.wikipedia.org/wiki/Conquest_of_the_Desert>

[3] Spanish, use translator:
[http://www.prensa.argentina.ar/2012/02/29/28494-se-
reglament...](http://www.prensa.argentina.ar/2012/02/29/28494-se-reglamento-
la-ley-que-limita-la-venta-de-tierras-a-extranjeros.php)

------
cmdkeen
"I used to think that if there was reincarnation, I wanted to come back as the
president or the pope or as a .400 baseball hitter. But now I would like to
come back as the bond market. You can intimidate everybody" -James Carville

------
molmalo
A vulture fund doing its things. ARA Libertad is a school vessel and is used
for diplomacy. I doubt they can do something useful with this

~~~
antr
This ain't no vulture fund; and we all know about Argentinian "diplomacy".

This fund invested in Argentina, because it believed in its economy - it went
long. Like many other funds who invest in US treasuries, German bunds, JGBs,
etc.

We all know the Argentinian government is no example for a well-run
government, and this fund is taking a stance (i) against the mal-practice/mis-
management of the Argentinian finances, and (ii) not accepting a smash-and-
grab of 30 cents on the dollar settlement.

All this fund is doing is collecting its debt. It just happens that one of the
assets it is after is pretty unique.

Clarifications:

If a country/company defaults != investors do not automatically agree to
settle at e.g. 30c/$ (investors need to agree to a settlement price, and in a
large syndicate a minority group of investors will never settle or will settle
at a higher price). If an investor doesn't settle, it has every right to claim
100c/$ + interest. Some comments imply otherwise.

Going long is no different when buying at 101 cents on the dollar or 1 cent on
the dollar - e.g. Greek 10Y bonds are currently being sold/bought at 20c/$,
that is no "vulture activity" but providing liquidity to the market. If there
are no buyers the Greek bond (or any other bond for that matter) would
technically collapse to zero. Some comments imply otherwise.

~~~
arbuge
No.

Elliott capital does not work this way. Google them.

They don't go long on anything. They buy debt from funds that did for pennies
on the dollar when it doesn't look like that debt will be repaid. They then
try to collect on it aggressively and turn a handsome profit in most cases.

It's been a very successful strategy for them - that's how their founder is
now a billionaire.

~~~
gadders
The message being: Governments, pay your debts.

~~~
wslh
Argentina reestructured its debts and it was a successful early 2000s
campaign. These funds make money buying debt for pennies. They are similar in
some way to patent trolls.

Not read this message as a support to the Argentinian government. What
Argentina did with its debt is a case study.

~~~
icebraining
_Argentina reestructured its debts_

Apparently, not all of it.

------
arbuge
Aside: There seems to be a strange (one-way) attraction between creditors and
sailing ships these days. Another example:

<http://en.wikipedia.org/wiki/Sedov>

"Sedov has regularly been targeted by unpaid creditors of the Russian
Federation such as Nissim Gaon (of now defunct Swiss group NOGA, an anagram of
Gaon) and also by French holders of defaulted Russian bonds; in 2002 Sedov was
forced to precipitously and unexpectedly leave Marseilles in the dead of
night[1] to avoid being served a writ by AFPER (French association of holders
of Russian Empire bonds) the following morning.

For over a year French holders of defaulted Russian bonds have been warning
they were going to reorganize and export their claim to Anglo-Saxon
jurisdictions, more friendly to private citizens than the French."

~~~
100k
I was curious AFBER because of the Russian Empire thing. It is indeed the
association of holders of Tsarist Russian bonds. They are trying to get paid
back two successor governments and 100 years later.

~~~
arbuge
Fascinating. Maybe they figured the Sedov was around back then so their claim
would look a bit more legit...

~~~
100k
No clue! According to Wikipedia, Sedov was taken from Germany after World War
2.

------
chollida1
I've got some experience with this, from being in the industry.

Not surprising most of these distressed debt funds are managed by lawyers and
bond traders. They started in earnest in the early 80s when "junk" bonds
became the latest trading fad.

The traders saw that they could buy up this debt cheap as most banks wanted it
off their books and the lawyers figured that they could negotiate better terms
than the previous owners would.

These types of funds can provide valuable services in a number of ways: \-
getting toxic debt off the balance sheet of other firms \- creating some
liquidity for existing holders \- getting the most money possible for existing
holders.

The downside is that if you are a target of one or more of these funds you'd
better have better negotiators and lawyers than they do :)

Not surprisingly the returns on these types of funds tend to fluctuate a lot
causing the industry to move to a few large funds and many small funds. The
smaller funds tend to have out sized returns for a couple of years and then
blow up spectacularly.

