Hedge funds bet on recovery by Argentina despite default

Buenos Aires fails to make €539m payment but some investors are hopeful of resolution

Axel Kicillof, Argentina’s economy minister: said “vulture funds” had rejected a renewed offer from the government and it was “impossible” to pay them more. Photograph: EPA/Jason Szenes

Axel Kicillof, Argentina’s economy minister: said “vulture funds” had rejected a renewed offer from the government and it was “impossible” to pay them more. Photograph: EPA/Jason Szenes

Fri, Aug 1, 2014, 01:00

Some of the world’s largest hedge funds have been snapping up Argentine stocks, betting on an economic recovery in the troubled country despite it defaulting on its debt for the second time in 13 years.

Hedge funds have built positions in Argentina’s energy companies, banks and telecoms operators in a show of confidence that the clash between Buenos Aires and its holdout creditors will yet be resolved.

Standard & Poor’s placed Argentina’s credit rating on “selective default” on Wednesday after it failed to make a $539 million (€402 million) interest payment on its debt. The default rating will remain until Argentina makes its overdue June 30th coupon payment on its discount bonds maturing in 2033, it said.

Axel Kicillof, economy minister, said “vulture funds” had rejected a renewed offer from the government and it was “impossible” to pay them more.

Interest payments

Market reaction to the default was muted in the country and across wider emerging markets yesterday. Prices fell for the Argentine bond on which interest payments were due, but failed to drop to the lows reached last year during the global emerging markets sell-off.

The long-running saga between Argentina and its creditors has made Argentine debt more expensive to insure against default than any other country and costs have increased more than 11 per cent in the past week.

DE Shaw, George Soros’s family office, Third Point and Renaissance Technologies have all bought holdings in the US-listed shares of Argentine companies including oil companies YPF and Petrobras Argentina, former state phone company Telecom Argentina and lender Banco Francés, according to investor letters and regulatory filings.

Analysts said that the complex nature of the default had left some investors hopeful that a resolution could still be reached, and that exchange bondholders stand to gain if a deal is struck with holdout creditors.

Dan Loeb, manager of the $14 billion US hedge fund Third Point, in a letter to investors this month said he had bought a stake in YPF, arguing “we are in the midst of a critical inflection point for the country”.

He wrote that if the government settled with its holdout creditors, “Argentina will regain access to global capital markets and solve its liquidity problem”. – (Copyright The Financial Times Limited 2014)