The vulture that is defying CFK
The negotiator for the Elliott fund on collecting Argentine debt speaks for the first time
Saturday, November 30, 2013
By Agustino Fonteveccia* (from New York)
On the thirtieth floor of a modern tower at 40 West 57th Street in New York, blocks from Central Park, one finds the headquarters of the enigmatic vulture fund that has given the government so many headaches, Elliott Management. There, in an office that seems more like a luxurious VIP lounge at an international airport than the famous trading floor of Wall Street, operates the investment fund of the mysterious billionaire Paul Singer who, after a decade of news blackout, decided to speak for the first time with an Argentine news outlet.
The one who received NOTICIAS was Jay Newman, man of close confidence with Singer and the main operator of the legal and financial strategy of the fund around Argentina. Physically, Newman could not be less like the archetypal financial speculator or aggressive vulture that Cristina so many time railed against from the podium. Tall and thin, he appears a bit fragile, almost languid. Whispering and timid in front of a camera, the vulture agrees to pose for the first time for a magazine and nervously stops in front of a window with New York below. After a couple of photos, he sits down at the table with a small plastic cup of coffee and recovers his self-esteem.
Noticias: Are you ready to sit down and negotiate with the Argentine government on the debt issue?
Jay Newman: We have been trying for ten years to negotiate with the Argentine government. This has been since before the first debt swap of 2005, when I had dinner with Guillermo Nielsen and we had a long conversation where I explained to him that the biggest quantity of bondholders had to participate and he had to sit down and talk with them, that they needed to have a good faith negotiation. But Argentina broke the mold. What the government did was something unprecedented that, frankly, I have never seen. It was unilateral, they said to us: “we are offering you this, accept it because it’s your only chance. If you don’t take it, we will never pay you a cent and for us you will cease to exist.” The value of that offer was more or less 25 cents per dollar owed and we said to ourselves that many of the international creditors would not take it, and that instead of dictating conditions they would have to sit down to negotiate.
Noticias: Do you have a number in mind?
Newman: No, without having made any analysis nor having discussed Argentina’s capacity to pay you can’t know what a fair value is, one has to have an open minds and take into account what makes sense and what does not.
Noticias: Of course, but the offer is not convincing to you.
Newman: Exactly, and for that the level of participation that Argentina got was unusually low, with 74% of the creditors joining the swap, compared to 95% or 96% that one gets when the parties negotiate. What is interesting of that 74% participation is that more or less 50% were Argentine creditors or institutions that had no option. Of the 26% remaining, the great majority were foreign creditors, which means that among international lenders, half didn’t enter the exchange.
Noticias: What kind of numbers are we talking about?
Newman: The number that we have heard most often is 80 billion dollars, with approximately 60 billion in holders that restructured while more or less 20 billion stayed out. And, true to their word, starting with the restructuring of 2005 the Kirchners cut off all communication with their creditors. It was then when we decided to litigate.
Noticias: Let’s go to today, you just said that you’re ready to negotiate. What kind of conditions would you accept to reach an agreement?
Newman: It doesn’t seem appropriate to me to negotiate through the press, and I understand that other people could think differently.
Noticias: Okay, but speaking from a broader point of view...
Newman: We have ideas of what we’d like to see, but I don’t want to speculate about what the Argentine government could accept, nor how those negotiations would unfold. What is important here is if we have the chance to sit down with the Argentine government, we could resolve this dispute in an afternoon. And I am not being metaphorical, it’s not so crazy if one accepts the premise that this conflict has to be resolved now.
Noticias: I imagine that you’re aware that Axel Kicillof has been designated as Economy Minister. Have you had any communication with him since, or before, or at any time?
Newman: With figures from the government we have only had contact with Nielsen, with Hernan Lorenzino and with then-ambassador Alfredo Chiaradía (Reporter’s Note: Chiaradía was Argentine ambassador in the U.S. from 2010 to 2011, when he was replaced by Jorge Argüello), with whom we discussed, in detail, the benefits for Argentina to resolve its dispute with the holdout bondholders and the possible ways that such an agreement could be made. With all respect, I don’t want to speak of an agreement here, with the press, since what is more appropriate would be to do it in a direct conversation with the government and in private.
Noticias: But didn’t you have another swap offer in 2010? Didn’t you speak with anyone from the government that time?
Newman: No, once again it as a unilateral offer that also was not only not better than the one from 2005, but worse. In all that time, every time I saw Argentina’s lawyers, from Cleary Gottlieb, I asked them to tell their client that we were ready to sit down to talk.
Noticias: And what happened?
Newman: Every time it was the same thing, they’d say to us “we will tell our client” and afterwards nothing, not a phone call, no reaction. After the close of the exchange in 2010, I had the opportunity to meet with Lorenzino, who was in the post of Economy Minister. We discussed the possibility of having a negotiation. It was not a negotiation, it was a discussion about a negotiation.
Noticias: A “metanegotiation”.
Newman: (Smiles). Yes, with a minister. He seemed very open to the possibility and I explained to him the same thing I’m saying here, it’s key to have a frank discussion that involves all the bondholders that are left, because we are not the only ones. The issue is that, and I believe the vast majority of the holdouts would be in agreement, nobody expects Argentina to reach an agreement that implies paying everything in cash. The idea is that it be a combination of cash and new bonds or other instruments.
Newman, now smiling and content that the cameraman has left, relaxed and speaking fluently. His discourse had been getting polished for years, being fine-tuned to adapt to the events of the moment. It’s new for him to speak to the media, much more an Argentine one. Months ago, Elliott Management finally decided to give its version to the media, first publishing a column in the prestigious Financial Times to then give an interview with the business cable channel with the highest ratings in the United States, CNBC. Fed up with being called speculators and vultures, at the Singer fund they changed the virulent attacks that they pointed at the government from the legal arena to public attempts at reconciliation and outreach.
When asked what the benefits for Argentina would be if the government of CFK negotiated an agreement, Newman lists the greatest problems from the K economic model: inflation, scarcity of dollars and the gap with the blue dollar, low productivity, very high interest rates that make private financing for productive investments impossible, lack of foreign investment, all issues that will improve if the government makes friends with the holdouts, he argues. But his eyes light up when he touches on an issue that recurrently comes back: Vaca Muerta.
Newman: Argentina would gain a lot from resolving this issue, as it would show the world, not only before possible lenders but also before institutions and large companies that are interested in investing in the country, that the economic policy is stimulating investment. Why is this important? Because Argentina has one of the biggest oil and gas deposits in the world.
Noticias: Vaca Muerta.
Newman: Yes, Vaca Muerta. The data that we have seen indicates that to be able to explore and finally commercialize those resources they need investments of between 50 and 100 billion dollars. That will not happen until Argentina shows that it is a friendly destination for foreign capital. Today, the government spends 10 billion dollars, more or less, importing gas to re-supply itself. For us, it doesn’t make sense that Argentina is a net-importer of fuel, but it should be exporting it.
Letter of introduction. But what exactly is this vulture fund? Elliott is a “hedge fund” a kind of investment fund that is dedicated to managing its own cash and that of others to apply “alternative” financial strategies. Elliott has a portfolio of approximately 22 billion dollars and is dedicated to all kinds of investments, but is best known for its aggressive bets on debt from countries in default or on the verge of it.
“Elliott manages the money of thousands of investors among them are retirement funds and pensions from municipal, state and private employers. We also invest the money of philanthropic foundations and universities,” explains Newman when asked what he thinks when he hears CFK accuse them of being financial speculators located in the Cayman Islands seeking to appropriate the riches of countries on the verge of the abyss, buying bonds at auction price or illegitimately attaching assets, like was done with the Frigate Libertad in Ghana.
“The fight between the Argentine government and the holdouts has been personified by speaking of our fund, while there are thousands of Italian bondholders that invested a lot before the default, some of them putting in a large part of their savings. Various other Argentine creditors and other investment funds are involved,” Newman says.
When he is asked who Paul Singer is, Newman responds diplomatically and with few words. “Paul founded our fund,” he explains, “and in a broader fashion he is involved in all that we do. But this fund has spent the last 35 years doing the same thing, we are more than 300 people with offices in New York, London, Hong Kong and Tokyo.” Singer, a billionaire with a low profile whose fortune is valued by Forbes magazine at 125 billion dollars, became known by investing in bonds from bankrupt countries, winning a multi-million dollar lawsuit against Peru in 2000, and, after discovering cases of corruption, forcing payments from Congo. Beyond representing a small percentage of its portfolio, Argentina remains an embedded thorn for Singer and Newman.
Elliott already can count on various legal victories against Argentina, from the rulings from Judge Thomas Griesa to those from the Court of Appeals in New York. In October, the U.S. Supreme Court decided not to take the case, opening the door for the government’s lawyers to continue seeking alternatives. Newman shows himself to be optimistic: “The legal strategy of the government’s attorneys is failing,” he says. But he doesn’t want to win in the Supreme Court, he wants to remove the thorn and collect.
Noticias: After the parliamentary elections of October, where the government suffered a heavy defeat, Sergio Massa and Daniel Scioli, joined by Mauricio Macri, arise as the biggest candidates to end up with the presidency in 2015. If you could talk with one of them, or with Cristina Kirchner right now, what would you say?
Newman: I hope to be speaking to them through you, and with President Kirchner herself. I would say to them that we are looking forward to resolving this dispute and I would explain that this is an issue of extreme importance for Argentine’s economic development. The government can decide if it wants to access the international debt markets or not, but resolving this fight would send a positive signal to foreign investors, it would help to reduce inflation, more dollars to enter, and, above all, it would open the doors for the development of Vaca Muerta, creating thousands or perhaps tens of thousands of jobs. It would benefit us, yes, but the Argentine state much more, the provinces, the cities, the companies and the people of the country.
Elliott vs. the K’s: The origin of the conflict
The conflict between the Elliott fund and the Argentine government was reported by NOTICIAS on February 6, 2010. In that edition, it was revealed on the cover: “Kirchner assets in the U.S. investigated”. The fund, headquartered in New York, was seeking undeclared properties of the presidential couple in that country with the apparent intention of pressuring them to sit down and negotiate a disadvantageous purchase of bonds in Argentine debt in default that Elliott had in its power. Two high level officials from the Casa Rosada – one minister and a diplomatic source – confirmed the information, also corroborated by an important businessman of financial advice with fluid relations with U.S. intelligence.
The government was aware of those searches from September 2009. And according to the same sources, it got into contact with a law firm to take preventive measures: Greenberg Traurig, located in Miami, contacted by then-ambassador in Washington, today Foreign Minister, Hector Timerman. The attorneys also had met in Buenos Aires with then-Cabinet Chief Anibal Fernandez. At Greenberg Traurig they denied having worked for the Kirchners, but didn’t respond when asked about contacts with Timerman and Fernandez.
The information that Elliott investigate on Kirchnerism finally was confirmed on May 19, 2010, three months after this newspaper reported it.