A Lonely Bet Against Portugal’s Debt

David Salanic cuts a lonely figure among the Manhattan machers eating power breakfasts at the Loews Regency Hotel restaurant on Park Avenue. Sure, he is a hedge fund guy, but with $50 million, his fund may represent a year of commissions for some of the heavy hitters in the room.

None of the big shots stopped by his table either, and the hostess, having messed up his table reservation, was not at all rattled by the snafu.

Still, while he may not bring with him the buzz of billionaire hedge fund raiders like Daniel S. Loeb and William A. Ackman, Mr. Salanic, the chief executive of Tortus Capital, has his own target â€" Portugal â€" and it is bigger in size than any of the major corporations that have come under attack by his larger peers.

Putting it bluntly, he said he believed that the country, despite accolades for its economic reform efforts, would soon default on its private sector bonds â€" in the same way Greece did in 2012.

“Portugal’s debt is just not sustainable,” Mr. Salanic said, as he tucked into a heaping plate of eggs and potatoes. “In fact, it is even more unsustainable than Greece.”

Unlike the vast majority of hedge fund investors, Mr. Salanic is straightforward and nonsecretive. He has no public relations team and there is no elaborate ritual before the interview over which parts of the conversation are to be on, or off, the record. He states openly that he is shorting Portugal’s bonds and that he has set up a website that sets forth his investment thesis in the form of a rigorous, 64-page PowerPoint presentation.

His thesis is that Portugal, with one of the slowest growth rates of any country in Europe, is in no position to make good on its debt, which, at 128 percent of gross domestic product, is on the verge of passing Italy to become the second-largest in the euro zone after Greece.

Moreover, Mr. Salanic said he believed that the country’s debt was understated and that if you added in debts guaranteed by the state, as well as other off balance-sheet transactions that state-owned corporations have put in place with foreign banks, the true figure approaches 150 percent of economic output.

All of which may be true, and in conversation or on paper, Mr. Salanic advances his arguments with precision and authority.

The problem is, no one seems to be listening.

Portugal’s 10-year bonds, once seen as virtually toxic, have been on a tear, with yields plunging from above 16 percent in 2012 to current levels of 4.9 percent. In fact, the most recent rally came soon after Mr. Salanic made public his bear case for the country about a month ago.

So, how does that make him feel?

Mr. Salanic smiled indulgently.

“I feel great about our position,” he said. “In fact, we have been increasing it.”

Brave words, no doubt. Especially as Mr. Salanic, in predicting a Portuguese default, is, in effect, taking on Chancellor Angela Merkel of Germany and Mario Draghi at the European Central Bank, both of whom have said in no uncertain terms that the restructuring of Greek debt was a unique case that was not to be repeated.

In fact, Europe has already rejected suggestions by the International Monetary Fund that it be more open to the idea of debt restructuring in the euro zone. Any chance that it might be either cowed or influenced by Mr. Salanic seems slim indeed.

Moreover, the Portuguese government recently announced that it had met its 2013 budget deficit target of 5.5 percent set by its creditors and in the past six months has successfully sold its bonds to international investors.

That is point that Isabel Castelo Branco, the secretary of state for the Treasury in Portugal, made sure to emphasize in a recent interview.

“The Portuguese economy has surprised on the upside, and foreign investors see this,” she said. “Now, you can see that the yield of our 10-year bond is below 5 percent.”

Ms. Blanco would not say in an interview whether she had read Mr. Salanic’s report, although she did say, a bit dismissively, that she had read about it in the Portuguese media.

“Investors are free to have their own views,” she said. “On both the long and the short end of the market.”