Monday, July 13, 2015

Belgium to Block ‘Vulture’ Funds From Profiting on Government Debt

Watch this end up in US courts. Aivars Lode

By Natalia Drozdiak

BRUSSELS—A Belgian parliamentary committee agreed to a proposal that would cap what so-called “vulture investors” recoup in Belgium on sovereign bonds if a country defaults, a lawmaker said Tuesday, as the draft enters into the homestretch before it likely becomes law.
The law would affect funds that have snapped up government debt at rock-bottom prices from countries teetering on the brink of default and subsequently seeking repayment for the full value of the bonds. The motion was unanimously agreed on by the finance committee, which is comprised of representatives of Belgium’s major political parties.
The lawmakers want to prevent the funds from seizing assets in Belgium belonging to the indebted nation.
“This presents a clear signal that [Belgian lawmakers think] finance shouldn’t be used as an instrument that destabilizes countries in default,” said Ahmed Laaouej, a Socialist party member and lead author of the proposal.
The finance committee’s backing of the proposal comes just weeks after U.S.-based NML Capital Ltd, a hedge fund embroiled for more than a decade in a dispute with Argentina over debt repayment, demanded Belgian banks freeze about €52,000 ($58,658) in Argentine accounts, according to a Bloomberg news report in May. The fund, a subsidiary of Elliott Management Corp., has refused Argentina’s restructuring offers since the government’s 2011 default and is suing the country for full payment. Elliott Management couldn’t immediately be reached for comment.
The Belgian law would apply either if the indebted country is insolvent, if the creditor has a history of chronic use of judicial proceedings to get back their claims, or if the creditor has declined to participate in the debtor state’s restructuring.
“That you couldn’t make a profit on your bonds seems a bit overkill—unless you want to kill the market…and with that, also kill off the virtues that some vulture investors offer,” said John Pottow, a University of Michigan law professor specializing in bankruptcy and commercial law.
While they sometimes engage in rapacious tactics to win back claims, vulture hedge funds are also important because they provide an outlet for other investors desperate to sell their bonds, Mr. Pottow said.
NML Capital also called on authorities in Ghana to detain an Argentine naval training ship in 2012 in a bid to pressure Argentina’s government to repay claims worth about $2.5 billion from defaulted sovereign bonds Elliott owns.
The Belgian proposal follows a similar move in the U.K., where the government passed a debt relief act in 2010, which blocks creditors from taking to British courts to extract steep repayments on debt from poor countries.
In several weeks, the draft will go to vote before all members of Belgium’s chamber of representatives, who typically votes in favor of the committee. If passed, the country’s King Philippe would then sign it into law.

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