The London Court of Appeal ruled that Argentina must pay US$337 million if it wants to continue litigation in a lawsuit over securities linked to Argentina’s gross domestic product in 2013.

Last April, the country lost the 1.33 billion-euro (US$1.46 billion) lawsuit against 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.

Argentina’s lawyers argued the country should not be required to pay to pursue its appeal.

On Thursday, Judge Stephen Phillips ruled that Argentina must deposit close to 20% of the total bill to appeal. The appeal process is set to start on May 21.

“There is a very high risk that the republic will find the funds to appeal both to this court and, if permitted, to the Supreme Court, but will not pay the judgment if unsuccessful,” he said in a written ruling. Argentina is currently in an international reserve crisis, with net reserves US$6 billion in the red.

HBK Master Fund, Hirsh Group, Virtual Emerald International, and Palladian Partners filed the lawsuit in 2019 for alleged losses linked to a change in the method of calculating Argentina’s GDP, to which their bonds were tied.

The case can be traced back to 2005, when the Néstor Kirchner government summoned creditors to agree new ways to repay the recently-defaulted debt. 

During those negotiations, Argentina offered new securities with a haircut of about 70% of the principal, with a “sweetening clause” that triggered the payment of a coupon if the country grew between 3% and 3.22%, depending on the year  — and only if this growth was not the result of a year-on-year rebound effect.

At the time, Argentina used data from a 1993 economic census to calculate its GDP. In 2014, at the request of the International Monetary Fund, Argentina changed the formula to calculate it with data from a 2004 economic census. However, wording in the contract with the creditors could be interpreted as requiring Argentina to measure its GDP using both economic censuses, therefore having two separate indexes until the end of the bond’s lifetime in 2035.

With a ratio between the newly-calculated index and Argentina’s official projected growth estimates, which relied on old economic data, the funds calculated that a 1.26% increase in the GDP in 2013 would be enough to trigger the payment obligation, instead of the 3.22% the contract originally implied. That year, growth was officially 2.92%. British High Court Judge Simon Picken accepted that argument.

The funds had an alternative argument, which the judge dismissed: that Argentina had “acted in bad faith” and forged its GDP data in March 2014 to avoid paying.

— Télam/Reuters/Herald