Hedge funds eye Argentine Central Bank’s gold reserves
Sat Oct 05 2024
Two hedge funds that won lawsuits against Argentina in New York have requested information from Judge Loreta Preska about the country’s Central Bank, intending to seize gold reserves after they were sent abroad.
The funds’ proceedings revolve around the argument that Argentina’s Central Bank is an “alter ego” of the state — a legal term meaning that it does not constitute a separate entity.
The Bahamas-based Bainbridge Fund won a lawsuit against Argentina in 2023 for US$95 million of debt securities that were defaulted in 2001. Bainbridge has started a discovery process in Preska’s New York court. In an October 2 written presentation, the fund requested information on the country’s gold reserves. In July, after the leader of Argentina’s bank workers’ union made a public information request, Economy Minister Luis Caputo confirmed that the Central Bank had moved at least part of its gold overseas, calling it “a very positive move.”
Caputo said the gold would generate returns, but he did not specify how much gold had been sent, to which bank, or the kind of operation. Since the gold was moved abroad, some analysts warned that hedge funds in international litigation against Argentina could request it as payment or collateral. Bainbridge did so for the first time in August, noting that President Javier Milei and Caputo spoke about the gold transfer, arguing that the Argentine state knows about it.
“The Republic had previously stated that the gold reserves belong solely to the Central Bank and that it had no information about the reserves other than what the Central Bank made publicly available,” Bainbridge’s letter to Preska said. It noted recent news reports that the gold reserves had been transferred abroad. Bainbridge added that the press was speculating the reserves would be used as collateral for loans that will enable the country to pay debt maturities for US$4.4 billion due in January.
Bainbridge also requested information on Letras Instransferibles, securities that the Treasury places with the Central Bank in exchange for liquid dollars from international reserves. They said Argentina had failed to provide information on them.
Argentina is set to answer Bainbridge’s letter on October 9, sources close to the matter told the Herald.
Burford Capital, the hedge fund that won a US$16.1 billion lawsuit against Argentina in 2023 for the expropriation of energy company YPF, has also started a discovery process for what it believes are the country’s alter egos. The company requested information on state-owned companies such as airline Aerolíneas Argentinas, Banco Nación bank, energy company ENARSA, and satellite manufacturer ARSAT. In April, they asked that Preska grant them all of Argentina’s YPF shares as payment, as well as information on the Central Bank.
They also requested government documents from current and former senior officials and advisors, including former customs head Guillermo Michel, Milei’s advisor Santiago Caputo, and former and current economy ministers Sergio Massa and Luis Caputo. Santiago is Luis’s nephew.
Similarly to what Bainbridge wrote, one of the arguments they gave in explaining their position that the Central Bank is an alter ego of the country was that when the financial institution received a public information request about its transfer of gold reserves out of Argentina, it was Economy Minister Luis Caputo rather than the Central Bank head Santiago Bausili who announced the operation to the press. They said that Caputo also gives “public statements about the government’s plans to strengthen the peso – an issue of monetary policy within the domain of [the Central Bank].”
They quoted an article saying that “Caputo is close to closing a loan of almost 5 billion dollars from the Bank of Basel to strengthen the reserves of the [Central Bank].”
Burford added that Caputo “is central to the Republic’s relationship with YPF” as an argument for YPF being an “alter ego” of the country. For example, they said that Argentina chose to move the location of a LNG plant it would build together with Malaysian company Petronas from Buenos Aires to Río Negro, quoting Buenos Aires governor Axel Kicillof’s remarks on that decision being made at the direction of Milei.
In their request, Burford also named Caputo’s nephew, Santiago Caputo, who is one of Milei’s closest advisors and they quote the President’s description of him “as part of the “iron triangle” (along with himself and his sister [Administrative Secretary Karina Milei]).” They requested documents pertaining to Santiago Caputo, as they consider that he could be involved in “day-to-day interactions” with YPF and the Central Bank. They argued that Caputo named his partner, Guillermo Garat, as YPF’s vice president in charge of advertisement.
Argentina has called that “rank speculation.”
Source: https://buenosairesherald.com