Dispatch #2: Who is David Martínez?

• Topic: Emerging markets, Frontier markets, Latin America, Distressed debt

• Companies discussed: Fintech Advisory, Vitro SAB de CV, Empresas ICA, Elliott Management, Aurelius Capital Management, Citigroup

• Countries discussed: Mexico, Venezuela, Argentina

• Regional focus: Latin America

• Industry focus: Finance

For someone known only as “the client” to many of his own employees, much has been written about the figure of David Martínez Guzmán. And, one could argue, for good reason: the founder of Fintech Advisory has built an empire trading his way through virtually every sovereign debt crisis of the last 30 years and swooping in to acquire distressed companies in his home country of Mexico and places even further afield. He virtually monopolizes the Argentine telecoms sector, has acquired significant stakes in ICA and Vitro – two of Mexico’s most storied enterprises –, and executed trades in Venezuela which, while controversial, were demonstrably above board. 

These successes have naturally driven a cottage industry filled with researchers and journalists who want to unravel the mystery of who David Martínez is and why he is so secretive. And what have they found? Intrigue, no doubt. While Martínez has deliberately kept a very low profile, what is known or thought to be known about him does little to diminish the common interest. His obsession with privacy is contrasted by the flamboyance of his tastes for art and real estate. Martínez has, for instance, owned Pollocks, Picassos and Rothkos, and at one point owned the most expensive apartment in the Time Warner Center. 

But there are plenty of low-profile investors with expensive tastes. What exactly has Martínez done to earn him the reputation that he has? There’s no unifying explanation for his success, although in broad terms one could say that he has excelled because he is a dispassionate and pragmatic actor who has used a variety of strategies ranging from shows of loyalty to cool ruthlessness depending on the requirements of the situation. He has also consistently demonstrated the value of relationships in emerging and frontier markets. While none of the events described below are being premiered in this dispatch, they are presented here without spin.

THE BATTLE FOR VITRO SAB DE CV 

The strategy that Martínez adopts is calculated and unique to a specific situation. The case of Vitro, the Mexican glass producer that dates back to the early 1900s, exemplifies this. The context is lengthy and a bit convoluted, but suffice it to say that the bankruptcy of such a large enterprise was big fucking news, and something that drew attention from the who’s who of distressed debt investors. Elliott Management piled in, as did Aurelius Capital, Citi and a number of the other banks and hedge funds that have so affectionately been dubbed fondos buitre because of their investments in Argentina. Martínez’s interests were counter to those of the other investors, in that he sought an outcome which would allow Vitro’s founding family, the Sadas, to continue to control the business. (There is a long explanation for this which deserves (and may receive) its own dispatch at some point.) 

As their interests ran counter to one another, you could say that a conflict was inevitable. Maybe that’s right, but if so you are more of a clairvoyant than the wise men that head Elliott Management, et al. were leading into debt negotiations. See, they thought they were being slick. Elliott and the other bondholders had convened a meeting and decided that they were going to dictate the terms of Vitro’s reorganization. A meeting was held in which they told the Fintech founder their intentions, and the gathering adjourned without much comment from Martínez. But they were in for a surprise. Following the meeting, two things happened: (i) Martínez approached Mexican bank Bancomer and acquired the entire portfolio of loans (worth ~$600 million) owed by Vitro, thereby becoming Vitro’s largest creditor; and (ii) Vitro sought massive loans from its subsidiaries, allowing these companies to create a new class of creditors.

This series of events is now (in)famous and as can be imagined, made the following meeting very interesting. After David rocked up to the next bondholders meeting and proclaimed his control of the company, a war of litigation ensued. Elliott and Aurelius filed lawsuits against Martínez, claiming a number of grievances, including that Martínez had broken Mexican bankruptcy law. Fundamentally, they were angry because, unlike in the US, Vitro’s bankruptcy actually ripped the face off of the bondholders and left Vitro in the hands of its shareholders. The new creditor class created by Martínez and Vitro was able to propose and approve a reorganization plan that benefited the shareholders more than bondholders such as Elliott and Aurelius.

Obviously this is not an easily imaginable scenario in the US or other developed markets, but it is very much within the realm of the possible in Mexico. Martínez knew this, and the supposedly sophisticated folks at Elliott, etc. either did not or chose to believe that it wasn’t realistic. Not only was what Martínez did not illegal, it’s not even that uncommon in Mexico. In the last several years, we’ve seen other banks – the Hank family’s Grupo Financiero Interacciones springs to mind – pull off something similar. In Mexico, everything about the rules, from how they are made and how they can be bent, is different. David had the knowledge and the connections and knew how to use them. And despite a war of subsequent litigation and, ultimately, a modus vivendi whereby Martinez agreed to buy Elliott’s debt, fundamentally he prevailed.

ARGENTINA: SOVEREIGN DEBT 

Mexico is Martínez’s country of origin, but his earliest successes came amid the tumult of the first Argentine debt crisis. His journey there began in the 1980s and you probably already know how the rest of this story goes. Martínez was the young and ambitious fixed income trader employed by Citi back when Citi was an interesting and even audacious bank that did pretty interesting and daring deals (how things have changed!). Why he was sent there is not explicitly spelled out anywhere but the word around the campfire is that the decision was owed to his capabilities as an investor and the fact that he could negotiate in Spanish. Not difficult to understand. 

The whole debt crisis in the 1980s was a fiasco and the Argentine government ejected many of the banks and other bondholders which it accused of acting as evil and predatory vulture funds that wanted to sink the Argentine economy. Despite this, Martínez recognized an opportunity, left Citi and, shortly thereafter, established Fintech Advisory in the BVI and returned to Argentina with the backing of the wealthiest families in Monterrey. He purchased around $1 billion in bonds and the rest, really, is history. Despite some turbulence relating to a suit Fintech Advisory filed against the Argentine government in the early 2000s, one of the only known photos of Martínez documents the end of a successful negotiation with the late Néstor Kirchner. The two men became very close in the intervening years, and Martínez, realizing the value of this relationship, established himself as an admittedly pro-Argentine intermediary between western and Argentine investors. 

Instead of adopting a hostile approach buttressed by threats of endless litigation and recourse to the US government and other “powerful” multilateral bodies like the IMF, Martínez conspicuously demonstrated his loyalty to the Kirchners. He purchased more than $100 million in defaulted Argentine bonds and invested heavily in many of the largest companies in Argentina when that country’s economy was at its knees. Martínez is not a charitable guy, and these decisions were not at all sentimental. But he, unlike the rest of the council of sages that were advising or investing in the Argentine economy, realized the value of taking a contrarian position (relative to his peers) and investing on the basis of strong relationships with Argentine government officials. 

The results have not always been smooth, and at one point David fell out with Néstor’s wife and presidential successor Cristina Kirchner, but these differences have been ironed out. Martínez is still the most influential foreign investor in Argentina and has prevailed over other heavyweights like Carlos Slim in consolidating his control over the Argentine telecoms sector.