Argentina loses US$1.5-billion UK appeal over GDP linked bonds

Argentina lost its attempt to overturn a UK court order to pay US$1.5 billion to compensate investors for losses in the country’s growth-linked securities.

The Court of Appeal refused the appeal over the payments to hedge funds including Palladian Partners LP. The investors alleged the loses were a result of a change in the method of calculating the country’s gross domestic product. 

The ruling is another setback for the country that’s battling annual inflation near 300 percent and a worsening recession, even after President Javier Milei’s economic shock therapy. The nation would be at the risk of struggling to service some of its debt if it’s forced to pay out US$1.5 billion in this case, its lawyers argued last month. 

Milei’s spokesman didn’t immediately respond to a request for comment.

At the root of the case is the country’s default on US$95 billion of debt in 2001 amid one of the worst financial crises in its history. GDP-linked bonds, which pay out when the economic expansion reaches a set threshold, were part of a restructuring programme. 

A dispute arose after Argentina changed the base year for calculating growth in 2013. Hedge funds, also including HBK Master Fund LP, Hirsh Group LLC and Virtual Emerald International Ltd, alleged Argentina made the changes to avoid payments on the bonds. 

The changes were necessary to avoid the returns on the warrants to be guided by “obsolete 1993 measure of GDP” until 2035, Argentina’s lawyers argued.

Earlier this year, the Court of Appeal ordered the country to deposit 310 million euros (US$334 million) in an account before the May hearing.

Argentina must now pay the warrant holders, Aidan O’Rourke, a lawyer at Quinn Emanuel Urquhart & Sullivan representing the funds, said.

“As ordered by the court, Argentina should now also publish the GDP data required for the securities for each year from 2014 onwards, so that payments for those subsequent years can be assessed,” he said.