10 Vulture Funds
Roberts
It is the obscure Hamilton Bank that is opposed to any agreement and instead is demanding full repayment on its holding of Sri Lankan bonds. Hamilton is what is called a ‘vulture’ fund’, buying up the ‘distressed debt’ of poor country governments at rock bottom prices and then pushing for full repayment at par (the original bond issue price), using the blackmail of refusing to agree to any ‘restructuring’. These vulture hedge funds specialise in sniffing out vulnerable sovereign bonds, amassing a blocking stake, waiting patiently for a broader restructuring to take place, and holding out for full repayment once a country has secured debt relief from other creditors. It’s called being a “holdout”.
The most infamous and successful example of this strategy was by Paul Singer’s Elliott Management which managed to extract $2.4bn out of Argentina in 2016 from the right-wing Macri government. In paying Elliott off, Macri was then able to get the biggest ever IMF fund deal in history, designed to ensure that government’s position in office for a long time – although that payout was squandered and the Macri government fell. The debt crisis goes on in Argentina.
Suing a sovereign for non-debt payment can be a justified and lucrative business.
Hamilton is demanding $250m in bond repayment and interest from the Sri Lankan government. The US court has intervened on behalf of the US government and other creditors to stop Hamilton getting its pound of flesh, at least until there is a general restructuring deal that Hamilton will be forced to go along with.
Even if Hamilton is thwarted and a deal with creditors is reached, Sri Lanka will still be burdened by a huge debt liability that can only be ‘serviced’ by cuts in the already low living standards of 22m Sri Lankans. The IMF has already indicated it will encourage austerity in Sri Lanka – reducing spending and increasing taxes. Sri Lanka did not seek IMF debt relief in the 1990s or early 2000s for that reason. But now it is either Hamilton or the IMF.