Soros’s Argentine Bond Bet Revealed in Lawsuit in London
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 LP, a fund managed by Soros’s family office, has joined a group of investors suing bond trustee Bank of New York Mellon Corp. for failing to distribute 226 million euros ($298 million) of interest payments on Argentine debt. The group, which also includes Kyle Bass’s Hayman Capital Management LP, owns more than 1.3 billion of euro-denominated bonds, court documents obtained by Bloomberg News show.
At the crux of the dispute is a U.S. court ruling won by Singer’s Elliott Management Corp., which blocked Argentina from paying its overseas bonds until the country compensates him and other holders of debt from its 2001 default. While the ruling prevents BNY Mellon from transferring any money deposited by Argentina until Singer is paid, it shouldn’t apply to bonds governed by jurisdictions outside of the U.S., the group says.
“The trustee isn’t acting in its official capacity as trustee,” Bass said in a telephone interview from New York. “Our interest payment is governed by U.K. law, which hasn’t ruled on this. Until there’s a similar injunction in the U.K., they owe us our interest payments.”
Michael Vachon, a spokesman for Soros, declined to comment. Stephen Spruiell, a spokesman for New York-based Elliott, didn’t return e-mails seeking comment on the lawsuit.
Singer, who also sued the governments of Peru and the Republic of Congo after they reneged on their obligations, bought Argentine bonds before its $95 billion 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 debt relief are now owed $1.5 billion as of result of the U.S. court orders.
Soros, meanwhile, has been an investor in the South American country for decades, having joined a group that purchased Argentine real estate company IRSA Inversiones y Representaciones SA in the early 1990s.
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.
U.S. District Judge Thomas Griesa called the payment “illegal” and prohibited New York-based BNY Mellon from distributing the funds to 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.
Argentina revoked the authorization of two BNY Mellon officials for failing to provide local financing, according to an Aug. 25 resolution. The lender had no operations in the country since December 2012, the document said.
In the U.K. lawsuit, Soros, Bass, Knighthead Capital Management LLC and RGY Investments LLC said that 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 bondholder 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 in a statement on Aug. 22. “BNY Mellon has consistently followed the binding court orders that govern its actions as trustee in this matter.”
A separate group of investors in euro-denominated bonds plans on appealing Griesa’s ruling in New York. Last year, that group sued Bank of New York Mellon Brussels and Brussels-based Euroclear SA in Belgian court. The outcome of a Sept. 9 hearing set for that case will be “important” for investors and the holdouts, said Bass.
Euroclear, the world’s biggest settlement system, has said the orders are in violation of Belgian law, which prohibits the obstruction of cash transfers made by settlement agents. The law was established in 2004 after an appeals court in Brussels overturned a lower-court order that had prevented Euroclear from accepting or making any payments on Nicaraguan bonds at the request of holdout creditors.
Citigroup Inc.’s Argentina unit is also appealing a decision by the judge that bars the bank from distributing payments on securities issued under Argentine law. Fintech Advisory Inc., a hedge fund run by David Martinez, who has litigated against Singer in other cases, said on Aug. 19 it will also appeal Griesa’s ruling.
“Clearly there’s a process of trying to carve out legal and local law” from the ruling,’’ Siobhan Morden, head of Latin America fixed-income strategy at Jefferies Group LLC, said by phone from New York. “The euro bondholders are aggressively trying to separate U.K. law from this expansive injunction.”
Argentina’s euro-denominated debt has outperformed its dollar bonds since the default, with yields on notes due 2033 rising about 2 percentage points, compared with a 2.7-point increase on same-maturity dollar bonds. The spread between the securities widened 15 basis points today to 45 basis points, the biggest since January.
Soros, the world’s 23rd wealthiest person, met with Argentina’s President Cristina Fernandez de Kirchner last year to discuss investment in the country, according to local newspaper BAE. Soros Fund Management LLC more than doubled its stake in Argentina’s state-owned oil producer YPF SA (YPF), adding 8.47 million shares in the second quarter, according to an Aug. 14 filing. Soros’s 3.5 percent stake worth $450 million makes him the fourth-biggest private holder.
Soros also owned 25.9 million shares worth about $244.6 million in South American agricultural company Adecoagro SA as of June 30, according to a filing with the U.S. Securities and Exchange Commission. That works out to a 21 percent stake, according to data compiled by Bloomberg.
Economy Minister Axel Kicillof has called on bondholders to demand their money from BNY Mellon, saying the nation fulfilled its obligations and isn’t in default.
“In a broader sense, what’s going on right now is the chickens coming home to roost,” Tim Samples, a professor of legal studies at the University of Georgia, said in a telephone interview. “People have been warning for years about the complexities and burdens for third parties in this case and we’re just seeing that unfold.”
(An earlier version of this story corrected the dollar amount of Adecoagro shares Soros owns in the 22nd paragraph.)