Hedge Fund Veteran Jay Newman Says Russia’s Sovereign Debt Is Worthless

(Bloomberg) -- Jay Newman, the hedge fund veteran behind one of the lengthiest and most contentious sovereign debt battles in history, says there's no opportunity to profit in Russian debt.

The former star fund manager at Elliott Management Corp., who helped billionaire Paul Singer win an epic 15-year fight against Argentina after its $95 billion default in 2001, says Russian government debt is likely worthless after a slew of sanctions were slapped on the nation for its invasion of Ukraine. He expects an imminent default.

The Russian government's next interest payments are due March 16, with several others later in the month. There's also a $2 billion dollar-denominated security maturing on April 4. Investors are still trying to get a handle on whether Russia could pay even if it wanted to given the sanctions and controls.

“I would be shocked -- absolutely shocked -- if they made the effort to make that payment later this month,” said Newman, who is 70 years old. “Given what's happened in terms of the sanctions that have been put in place and the need for hard currency, there's no logic to them paying at this point.”

Of course, Newman isn't alone in his warning. Everyone from Amundi SA and Schroders Plc to DWS Group and Fidelity International say Russian debt is uninvestable. S&P Global Ratings cut Russia's ranking by eight levels on Thursday to just three steps above its default score, deep into junk territory.

But what makes Newman's pessimism so notable is that he's known for wringing profits out of the world's most disastrous defaults, like in Argentina. For him to view Russia's distressed, external sovereign debt as worth “zero” says a lot.

Newman made a similar warning in 2017 about $30 billion of debt issued by state-run Petroleos de Venezuela. Benchmark securities from that issuer now hover around 4 cents.

The Default Question Hangs Over Russia's Frozen Bond Market

A lawyer by training who has recently been working as an adviser to shareholders of Devas Multimedia, Newman called the bond prospectuses for Russia's sovereign securities some of the “craziest things I've ever looked at.” Unlike typical debt contracts, the bonds lack a waiver of sovereign immunity and, while they are nominally governed by U.K. law, they don't appear to submit to a jurisdiction. That means that if Russia fails to pay, it's unclear where or how the country could be taken to court, he said.

“There's no protection at all in these bonds for creditors,” said Newman, who recently wrote a debut novel, a thriller that features President Vladimir Putin. “Payment by Russia is really optional.”

It's a situation unlike Argentina's default more than two decades ago, which would become a highlight of Newman's career. He oversaw Elliott's investment in the case until the government finally settled in 2016. He was credited as the mind behind efforts to hold out from a restructuring deal that most creditors took and instead seek to collect full repayment via the court system. It was a dramatic battle, and included efforts by Newman and his allies to seize the nation's overseas assets, including its rights to launch satellites from an Elon Musk rocket ship. He retired from Elliott shortly after the firm reached the Argentina settlement.

How Sanctions Create a Risky Tangle for Russian Bonds: QuickTake

When it comes to what's next for Russian debt, though, Newman says he expects it to be a long and complicated path ahead.

“It's the sort of thing that I do, but I don't see a way to get involved,” he said. “Today, I wouldn't pay a penny for these bonds.”