Three investment funds that hold Argentinian sovereign bonds linked to the performance of the country’s gross domestic product are suing the government of Argentina in the High Court of England and Wales claiming it failed to make payments of about 384 million euro (CI$349 million) due under the bond.
Cayman Islands-registered Palladian Partners LP and HBK Master Fund LP, and Delaware-incorporated Hirsh Group LLC, argue that Argentina is in breach of contract because it failed to properly calculate payment amounts for the year 2013, after it switched from using 1993 prices to calculate reference GDP values to 2004 prices.
The bond issuer in turn claims that one of the conditions for the payment was not met. For a payment to be due, the actual real GDP and actual real GDP growth had to exceed the base case GDP and growth for the year. In addition, lawyers for the government of Argentina submitted investors had to prove that its conduct amounted to “a manifest error”, “wilful misconduct” or “bad faith”.
The three investment funds make the case that the so-called performance condition would have also been met under 2004 prices, if an adjustment provision, covering instances when a base rate other than 1993 prices is used, had been correctly applied.
They disagree that they must demonstrate manifest error, wilful misconduct or bad faith on the part of the issuer but state in their claim that it does in any case.
The claimants further argue that Argentina’s switch to 2004 prices for the reference year and its decision not to publish GDP data in 1993 prices was improper, irrational, arbitrary and capricious.
According to the claim, Argentina’s statistical government agency INDEC never published fourth quarter GDP data on the basis of 1993 prices but only on “what purported to be 2004 prices”.
“On that new basis, the Minister of Economy announced that growth for 2013 had been 2.93%. This is despite the fact that the Republic was reported to be defending a GDP Growth estimate of approximately 4.9% just hours before the announcement,” the writ states, adding that at the time there was political pressure on the government not to use dwindling foreign currency reserves to make the payments to foreign creditors.
If the performance condition has been met, the funds say, Argentina would likely have to pay more than $2 billion in relation to the securities for the reference year.
The claimants state they hold about 29% of the securities issued with a total notional value of more than 5.4 billion euro, and would be owed an estimated 384 million euro for the year 2013.