Argentina will appeal the London High Court’s unfavorable ruling related to GDP-linked securities — if unsuccessful, the country faces a 1.33 billion-euro (US$1.46 billion) plus interest fine. The lawsuit was presented by four hedge funds that accused Argentina of changing economic calculations in order to avoid paying an extra sum that depended on its GDP growth. 

Argentina highly contests that argument and will file an appeal in June.

Two sources with access to the case who asked not to be identified told the Herald that Argentina has to ask Judge Simon Picken, who issued today’s ruling, for permission to appeal. If the judge rejects the request, Argentina can still go to the Chamber of Appeals, which also has the power to accept or reject the petition. In the event that both the judge and the Chamber reject Argentina’s appeal requests, Argentina will have to pay US$1.46 billion, plus interest.

The lawsuit in question was presented in 2019 by four hedge funds: Palladian Partners L.P., HBK Master Fund L.P., Hirsh Group LLC, and Virtual Emerald International Limited. They hold around 48% of the GDP-linked securities issued between 2005 and 2010. These are euro-denominated bonds under UK law.

In December 2001, in the midst of a political and economic crisis, Argentina’s President Adolfo Rodríguez Saá announced the suspension of sovereign debt payments. A few years later, in 2005, the government of Néstor Kirchner summoned creditors to agree on new ways to repay the defaulted debt. 

During the restructuring negotiation process in 2005, Argentina offered new securities with a haircut of about 70% of the principal. The creditors did not accept this because they considered that the country’s economic situation had improved and that this meant it had increased its ability to pay. 

The solution found by Argentine officials (then-Economy Minister Roberto Lavagna and Finance Secretary Guillermo Nielsen) was to offer creditors a sweetening clause that triggered the payment of a coupon in the event that the country grew  at a rate higher than projected.

At the time, Argentina was then using data from a 1993 economic census to calculate GDP. In 2014, Argentina changed the formula to calculate its GDP using data from a 2004 census. With this change, 2013 GDP growth was 2.92%, below the 3.22% that triggered the GDP coupon payment. Following that change, Argentina stopped publishing the 1993-based series, which is now one of the issues in dispute in the British courts. 

Judge Picken concluded that the claimants “are right in what they have to say on that construction issue” but dismissed that Argentina “acted in bad faith in producing certain Gross Domestic Product (‘GDP’) data in March 2014.”

Official INDEC figures were hotly contested in 2013 but Judge Picken wrote in the ruling that the issue was irrelevant to the case at hand given  “the seriousness of the allegations which it entails and given that those allegations are leveled against a sovereign state”.

According to Aidan O’Rourke, a partner at the Quinn Emanuel law firm who represents the claimants, the four hedge funds “look forward to [Argentina]  re-establishing its former GDP series and using that as the comparative benchmark for whether payments should be made on the warrants for the period from 2015 until the warrants expire in 2035”. 

Argentina’s lawyers told  Reuters that “no rational government deliberately understates GDP” and pointed out the country had paid nearly US$10 billion to holders of its GDP-linked securities since they were first issued in 2005.

A similar lawsuit was filed in New York but with bonds denominated in dollars and under US law. According to a source with knowledge of the case, the judicial process is more delayed than in the UK. The judge in charge of this process is Loretta A. Preska, who last week ruled against the country in a lawsuit for YPF expropriation.