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.