Frigate Libertad: Vulture Funds and Cabin Fever in West Africa

On 2nd October, the Argentine naval training vessel ARA Frigate Libertad was seized by Ghanaian authorities when it docked in the port of Tema on the first stop of what was meant to be a diplomatic trip down the west coast of Africa. The order to detain the ship was issued by the Commercial Court of Accra, ruling in favour of the Cayman Islands-based hedge fund NML Capital. The group claims it is owed US$370m by the Argentine government.

Frigate Libertad in 2007 (Wikimedia)

When the case was brought to court on 9th October, Argentina’s claims that the Libertad, as a military vessel, was immune from any foreign court’s jurisdiction were rejected by NML Capital’s lawyer Ace Anan Ankomah, who stated that Argentina “had already forfeited the immunity associated with this dispute by virtue of its debt.”

‘Vulture Funds’ and the 2001 Crisis

NML Capital, a subsidiary of the investment organisation Elliot Capital Management founded by North American businessman Paul Singer, bought Argentine bonds at a discount during the economic crisis in the hopes of being paid back in full when the economy recovered. The Argentine government defaulted on US$100bn of its debts in 2001, stating it was economically impossible to meet them.

Argentina restructured its debt in 2005, extending to its creditors an offer of about 30 cents on the dollar. In 2010 President Cristina Fernández de Kirchner repeated the offer to investors who had initially rejected it, thus settling 93% of claims against the Argentine government. A handful of so-called “vulture funds”, however, including NML Capital, continue seeking to be paid in full.

“Between 2005 and 2010, 93% of debt was renegotiated with creditors, leaving 5% in the hands of vulture funds dedicated to extorting countries by buying their debt for small change and with usurious methods demanding payment beyond all logic”, said Foreign Affairs Minister Hector Timerman in a press conference on 26th October.

The predicament of the Libertad is nothing new for Argentina; since 2004, vulture funds have attempted to seize 28 of the nation’s assets, including state-owned property abroad, artwork, the weather satellite Acquarius, and even the presidential airplane, known as ‘Tango 01’. The Argentine government, so far, has won all these cases after lengthy judicial processes in foreign courts.

This most recent injunction issued by the Ghanaian court referred to the Argentine government’s refusal to pay US$1.7bn in judgements awarded to NML Capital by New York District Judge Thomas Griesa in February.

The South American nation is not the only target of Singer and Elliot Capital Management. In the late 1990’s the company, through its subsidiary Kensington International Inc., purchased US$32.6m in loan debt incurred by the Republic of Congo for about US$2.3m, according to Bloomberg News. When the African nation said that it could not pay, the British High Court awarded Kensington US$39m to be paid from the country’s oil sales.

In the early ‘90s, Singer and Elliot Management purchased US$20m worth of Peruvian debt for only $11.4m, in a situation closely paralleling that of Argentina’s. When Peru was forced to restructure its debt, Elliot Management sued for full payment plus interest on its investments. The Peruvian government ultimately agreed to pay the US$56.3m awarded to Elliot Management by a Belgian court, nearly quintuple its initial investment.

“Our primary goal is to find bankruptcy situations where our ability to control or influence the process is the driver of value. That’s our favourite”, Singer told Bloomberg Markets in 2008.

Singer, who serves as a board member for the Manhattan Institute for Policy Research, Harvard Medical School, and the Committee on Capital Markets Regulation, among others, is a prominent donor to the US Republican Party, and donated US$1m to the super PAC Restore Our Future, Inc., in support of former presidential candidate Mitt Romney. It was revealed last month by The Nation that in 2011 Ann Romney, the former candidate’s wife and would-be First Lady, had invested US$1m in Elliot Capital Management.

The Libertad docked in Buenos Aires (photo: Beatrice Murch)

Dialogue, Civil or Otherwise

Since the Libertad’s detainment over a month ago, delegates from Argentina have engaged in dialogue with Ghanaian authorities regarding the ship’s release, even bringing the matter to the attention of the United Nations. On 22nd October, Timerman met with Gert Rosenthal, president of the UN Security Council (of which Argentina will be a member beginning in January), although Rosenthal implied that it was not the Security Council’s place to intervene.

Ghanaian Minister of Foreign Affairs Alhaji Mumuni discussed the debacle, stating “It is true that as a nation and, particularly this ministry, we feel very embarrassed about it, especially given the fact that this trip was arranged through diplomatic channels and we have excellent relations with Argentina. But there’s nothing we can do about it because we are a nation of laws”, he told Vibe Ghana, referring to NML Capital’s use of the nation’s courts to detain the vessel.

On the same day as Timerman’s trip to the UN, the Navy confirmed that 281 members of the 326-strong crew would return to Buenos Aires on an Air France charter flight. Two days later the sailors were escorted by local police and members of the armed forces from the Libertad to the airport, in a scene Clarin reporters described as reminiscent of a “secret service” operation. They arrived in Ezeiza International Airport minutes after midnight on Thursday, 25th October.

A skeleton crew of 45 sailors including the captain, however, remains aboard the Libertad indefinitely, and tensions are escalating after over a month of being forcibly moored in Tema. On 10th October Port Authority officials were met by armed Argentine sailors when they attempted to board the Libertad to discuss moving the ship to another, less commercially important berth. It is estimated that the Libertad has been costing the port about US$60,000 per day in lost revenue.

The Port Authority of Tema has stated that as of Monday 12th November, the ship will remain without power, water, or fuel supplies. According to La Nación, the confrontation and the Port’s subsequent decision to cut the ship’s power have prompted the Ministry of Defence to consider whether or not to send a new contingent of sailors to relieve those who have been there for over 40 days.

Timerman and Minister of Defence Arturo Puricelli stated in a press conference on Monday that if the Libertad was not released by Ghanaian authorities upon the embargo’s expiration on Tuesday 13th November, they would have to take the case to the International Tribunal for the Law of the Sea.

The government has remained steadfast in its decision not to pay the US$20m bond that Ghanaian judges say would free the ship, despite the pleas of some sailors to do so.

Fernando Morales of the Navy League told Radio 10 “Forty-four men have been there for a long time now and it is not a normal situation.”

The Libertad Debacle – A Timeline

2001 – Argentina defaults on approximately US$100bn, the largest credit default in history. Elliot Capital Management is among the bondholders of Argentine debt.

2005 – President Nestor Kirchner offers creditors a “one time only” payment of about US$0.30 for every dollar invested. About two-thirds of creditors accept the deal.

2007 – ‘Holdout’ bondholders plan to detain the Argentine presidential plane ‘Tango 01’ during a scheduled maintenance stop in the US. The trip is cancelled, however, and the government of Nestor Kirchner countersues.

2010 – President Cristina Fernández de Kirchner again presents the US$0.30/dollar offer to those creditors who did not accept it the first time. Elliot Capital Management forms part of the 7% of creditors who maintain they will accept nothing less than full payment.

2nd June 2012 – The Libertad departs Buenos Aires on a goodwill training mission.

2nd Oct – The Libertad is detained by Ghanaian authorities in the port of Tema, after the Commercial Court of Accra rules in favour of NML Capital, a subsidiary of Elliot Capital Management. The hedge fund had apparently been tracking the vessel’s course.

9th Oct – Argentina cites diplomatic immunity in court on the basis that the Libertad is a military vessel. These claims are rejected by judge Richard Adjei Frimpong.

15th Oct – Navy Chief Carlos Alberto Paz is replaced, along with two other senior navy officials.

16th Oct – Argentine delegation arrives in Ghana to discuss the ship’s release. Crewmembers are allowed to disembark and move about freely.

22nd Oct – Foreign Affairs Minister Hector Timerman seeks the assistance of the UN in recovering the Libertad. UN Security Council President, Gert Rosenthal, says “I spoke to the minister and he also knows that the Security Council is concerned with the maintenance of world peace and security and that this case is not exactly threatening world peace.” It is confirmed that crew members will be allowed to return home.

24th Oct – 281 crewmembers are escorted from the Libertad by local police and armed forces. The captain and 44 crewmembers remain behind to maintain the ship.

25th Oct – Crewmembers arrive in Ezeiza International Airport just after midnight, after three weeks moored in Ghana. National Minister of Defence Arturo Puricelli claims responsibility for the Libertad’s unscheduled stop in Tema.

26th Oct – US Circuit Court of Appeals rules that Argentina discriminated against bondholders that did not take part in the 2005-2010 debt restructurings. Judge Thomas Griesa warns “They [the bondholders] have been waiting for years to get some money, and they’re going to get something.”

9th Nov – Crewmembers remaining on the Libertad threaten to open fire on Ghanaian Port Authority officials who attempt to board the vessel. The officials had cut both power and water to the vessel in preparation of moving it to another berth.

12th Nov – Argentine Foreign Affairs and Defence Ministers declare that the case will be brought to the International Tribunal for the Law of the Sea if the ship is not released by authorities upon the embargo’s expiration on 13th November.

This piece originally appeared in The Argentina Independent.

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