The Government could face serious problems paying part of its debt if it is forced to disburse US$1.5 billion in ordered compensation by a British court to investors last yearas warned by the legal team that represents the country, currently led by the president Javier Milei.
It is worth remembering that, in 2023, hedge funds such as Palladian Partners LP won a ruling from the High Court of the United Kingdom that determined that Argentina must compensate investors for losses derived from the change in the method of calculating the Gross Domestic Product (GDP), as stated this Tuesday by the agency Bloomberg.
The Argentine State had been condemned in English courts for changes in INDEC statistics during the presidency of Cristina Kirchner. The change caused harm to the bondholders, since they generated lower profitability for coupons tied to GDP, issued along with the bonds in the 2005 debt restructuring and tied to the growth of the local economy.
The Argentine Republic appealed the decision, but to do so it has to comply with a series of requirements, among them the creation of the trust to deposit the 337 million dollars there as collateral, a movement that has already been executed by the Milei Government. However, according to the aforementioned news agency, this Tuesday, Argentine lawyers argued that the ruling could force the Government to make payments even in times of economic recession.
PBI coupon: the verdict
The 2023 verdict decouples real growth from the bonds, unfairly connecting them to an outdated measure of GDP, Argentine lawyers said.
Forcing the country to pay during a recession could compromise “the ability of the Republic to pay both its GDP-linked debt and conventional debt“, indicated the lawyers in their writings, according to Bloomberg. This year, the Nation faces a new recession after the adjustment plan advanced by Milei, with some analysts projecting a contraction that would approach 4%. In that context , Sue Prevezer, Palladian’s lawyer, dismissed the arguments outlined by the Argentine defense, calling them “an exercise in wishful thinking.”
PBI coupons: what they are and how the debt originated
PBI coupons were issued in 2005 as part of the restructuring of the debt defaulted in 2002 and they had to pay returns to the bondholders every time Argentina reached a growth of its Gross Product of 3.3% annually.
After their release on the market, PBI coupons quickly became one of the favorite assets of the local market in the face of the growth at “Chinese rates” that took place during the presidency of Néstor Kirchner and the first mandate of Cristina Kirchner.
In it last quarter of 2013the GDP calculation formula and the annual growth at that time closed at 3.2%, 0.1% below the 3.3% that required payment. So, there were no new disbursements for that concept.
Those unspecified payments were what generated the lawsuit resolved last year in London that added US$ 1,440 million to the external debt national.
Source: Ambito
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