US hedge fund seizes Argentine naval ship

The ARA Libertad is now the property of Elliott Capital Management.

An American hedge fund has seized a ship owned by the Argentine navy from a Ghanaian port, as part of an attempt to collect on bonds purchased after Buenos Aires defaulted in 2001.

The fund, Elliott Capital Management, has been engaged in a long-running legal battle with the Argentine government. It specialises in what is euphemistically termed "distressed debt" – it buys up bonds held by countries which are extremely likely to default, or which have already defaulted. As a result, it gets them for a pittance, around one fifth of face value.

The strategy from there is to refuse to accept the default. If it does not voluntarily enter into any debt-swaps, then the company can continue to claim it is rightfully owed the full amount on the bonds. If, eventually, it gets paid, a massive profit has been earned.

This tactic has led to Elliot, and other funds which operate in a similar manner, being dubbed a "vulture fund", profiting from dead or dying economies. The firm itself insists it only takes action against countries that can afford to pay, but choose not to.

The decade-long fight to recover the face value of the Argentine bonds has been carried out on a number of battlefields, from the US Courts to the World Bank (£), but the latest turn is the most nautical of them all.

The seizure, of a 100m-long tall ship staffed by 200 sailors, appears to have been planned for some time by Elliott. The FT reports (£):

Elliott had been waiting for the ship to stop in a port where it would have a chance to enforce legal judgments previously awarded by UK and US courts. The hedge fund declined to comment. . .

US and UK courts have awarded $1.6bn in claims in [Elliott's] favour, but Argentina has taken a tough line on lingering holdouts, saying there will be no further offers.

If a US court ruling from February 23 is upheld on appeal, Argentina must pay interest to Elliott before making any payment to holders of bonds issued in the 2005 and 2010 swaps. An appeals ruling has not yet been issued.

The Libertad, which Elliott expects to be awarded ownership of, has been estimated in value at between $10m and $15m.

The vessel, a tall ship used by the Argentine Navy to train sailors and a former holder of the world speed record for a transatlantic crossing by sail, was on a graduation tour. It is free to leave the Ghanaian port of Tema if Buenos Aires posts a bond with the court, which Elliott would then also seek to recover.

In the long-run, Elliott will still rely on winning court cases to pressure the Argentine government into paying the outstanding loan in cash, rather than boats.

The ARA Libertad in better days. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Nicola Sturgeon is betting on Brexit becoming real before autumn 2018

Second independence referendum plans have been delayed but not ruled out.

Three months after announcing plans for a second independence referendum, and 19 days after losing a third of her Scottish National Party MPs, Scotland’s First Minister Nicola Sturgeon booted the prospect of a second independence referendum into the heather. 

In a statement at Holyrood, Sturgeon said she felt her responsibility as First Minister “is to build as much unity and consensus as possible” and that she had consulted “a broad spectrum of voices” on independence.

She said she had noted a “commonality” among the views of the majority, who were neither strongly pro or anti-independence, but “worry about the uncertainty of Brexit and worry about the clarity of what it means”. Some “just want a break from making political decisions”.

This, she said had led her to the conclusion that there should be a referendum reset. Nevertheless: "It remains my view and the position of this government that at the end of this Brexit process the Scottish people should have a choice about the future of our country." 

This "choice", she suggested, was likely to be in autumn 2018 – the same time floated by SNP insiders before the initial announcement was made. 

The Scottish Lib Dem leader Willie Rennie responded: “The First Minister wishes to call a referendum at a time of her choosing. So absolutely nothing has changed." In fact, there is significance in the fact Sturgeon will no longer be pursuing the legislative process needed for a second referendum. Unlike Theresa May, say, she has not committed herself to a seemingly irreversable process.

Sturgeon’s demand for a second independence referendum was said to be partly the result of pressure from the more indy-happy wing of the party, including former First Minister Alex Salmond. The First Minister herself, whose constituency is in the former Labour stronghold of Glasgow, has been more cautious, and is keenly aware that the party can lose if it appears to be taking the electorate for granted. 

In her speech, she pledged to “put our shoulder to the wheel” in Brexit talks, and improve education and the NHS. Yet she could have ruled out a referendum altogether, and she did not. 

Sturgeon has framed this as a “choice” that is reasonable, given the uncertainties of Brexit. Yet as many of Scotland’s new Labour MPs can testify, opposition to independence on the doorstep is just as likely to come from a desire to concentrate on public services and strengthening a local community as it is attachment to a more abstract union. The SNP has now been in power for 10 years, and the fact it suffered losses in the 2017 general election reflects the perception that it is the party not only for independence, but also the party of government.

For all her talk of remaining in the single market, Sturgeon will be aware that it will be the bread-and-butter consequences of Brexit, like rising prices, and money redirected towards Northern Ireland, that will resonate on the doorstep. She will also be aware that roughly a third of SNP voters opted for Brexit

The general election result suggests discontent over local or devolved issues is currently overriding constitutional matters, whether UK-wide or across the EU. Now Brexit talks with a Tory-DUP government have started, this may change. But if it does not, Sturgeon will be heading for a collision with voter choice in the autumn of 2018. 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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