GDP coupon case: Argentina loses US$1.5 bn appeal in London

The case will be closed unless Argentina secures permission to appeal to the Supreme Court

The Royal Courts of Justice in London, UK, home to the court of appeal. Source: It's No Game via Wikimedia Commons

The London Court of Appeal ruled that Argentina must pay 1.3 billion euros (US$1.5 billion) as it rejected Argentina’s appeal in the lawsuit over securities linked to the country’s gross domestic product, a case it lost in April 2023.

In their 33-page ruling issued on Wednesday, judges Andrew Popplewell, Kim Lewison, and Sarah Falk agreed with the original judgment by Simon Picken that the claimants were entitled to the coupon, which depended on the growth of the country’s GDP. However, both the original and the appeal courts agreed that the case was related to the wording in the terms and conditions of the global securities and not to Argentina deliberately miscalculating its GDP in “bad faith.”

The ruling upheld the warrant holders’ case in full. Argentina can try to appeal the case to the Supreme Court, but it needs permission from the Court of Appeal or the Supreme Court itself. If permission is not granted, the case will be over.

The lawsuit was filed by Palladian Partners, HBK Master Fund, Hirsh Group, and Virtual Emerald International — four hedge funds that hold around 48% of GDP-linked securities Argentina issued between 2005 and 2010. In January, the country was given permission to appeal the ruling by paying US$337 million as collateral.

The case can be traced back to December 2001 when, amid a political and economic crisis, Argentina’s President Adolfo Rodríguez Saá announced the suspension of sovereign debt payments. In 2005, the government of Néstor Kirchner summoned creditors to agree on new ways to repay the defaulted debt. 

During the negotiation process to restructure debt of around US$94 billion, Argentina offered new securities with a haircut of about 70% of the principal and offered creditors a sweetening clause that triggered the payment of a coupon if the country’s GDP grew at a higher rate than projected.

At the time, Argentina used data from a 1993 economic census to calculate its GDP. In 2014, Argentina rebased the formula used to calculate its GDP, using data from a 2004 census at the request of the International Monetary Fund. With this change, 2013 GDP growth was 2.92%, below the 3.22% that would have triggered the GDP coupon payment. Following that change, Argentina stopped publishing the 1993-based series. The claimants say that, measured with 1993 series, 2013 GDP growth would be enough to trigger the payment obligation.

Aidan O’Rourke, partner at Quinn Emanuel with responsibility for the case, said that the claimants are pleased with the Court of Appeal’s decision, which the plaintiffs say “follows the plain meaning of the terms of the Securities and endorses the decision of the High Court Judge in 2023.”

“It is almost ten years since Argentina should have made [a] payment of EUR 1.33 billion to all holders of its Euro GDP Securities,” O’Rourke added. “The warrant holders have been denied the amount owed to them since that time, and Argentina should now make payment including interest without further delay.”

O’Rourke added that Argentina should now also publish the GDP data calculated with the 1993 series from 2014 onwards, “so that payments for those subsequent years can be assessed.”


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