Large Lankan team going to London town!

•  High-powered officials and private sector personalities to appear as witnesses as Standard Chartered Bank’s case claiming $ 160 million of failed payments on hedging deal fiasco comes up for hearing in London Commercial High Court on Monday

A large contingent of representatives from the public and private sector will be heading to London over the weekend to appear as witnesses when the case filed by Standard Chartered Bank comes up for hearing in the Commercial High Court in London on Monday.

Standard Chartered Bank UK instituted legal proceedings against CPC claiming US$ 161 million (nearly 18 billion – excluding interest) on account of failed payments by the State petroleum utility on a hedging deal contracted.

The Daily FT learns that the Lankan contingent flown and accomodated at State expense numbers nearly 20, whilst they are likely to stay put in London for a considerable time considering the manner in which courts work in UK. The delegation includes Attorney General Mohan Peiris, two State Counsels, President’s Counsel and Bar Association Chief Shibly Aziz, former CPC Chief Asantha de Mel under whose tenure the controversial hedging deal was executed, the then Petroleum Minister and now Senior Minister A.H.M. Fowzie, several Directors and officials from CPC, top banker Kimarli Fernando formerly of Standard Chartered Bank and now Director of several bank boards, former BOC Chief Financial and Risk Officer and Chairman of Audit Committee of CPC  and now NTB Chief Executive Saliya Rajakaruna and officials from the Central Bank.

 

Large Lankan...

The case by SCB UK after the Head Office took over the liability out of the Colombo Branch is in addition to Citi and Deutsche Bank independently instituting arbitration or proceedings against CPC for their claims.

The contentious hedging deal dates back to early 2007 when CPC entered into a transaction to hedge against rising oil prices with SCB, Citi and Deutsche as well as two local banks –  the State-owned People’s Bank and the biggest private sector player Commercial Bank.

The contact entered into was what is described as ‘zero dollar option,’ which capped the exposure amount at a price. Originally hedging deal benefitted CPC but from mid-2008 as the price of oil decreased dramatically in tandem with the global recession, CPC had to make substantial monthly payments to the banks under the agreements. Efforts to restructure the deal failed, leading to default by CPC in late 2008.

Given the serious impact of the deal and its fallout, the hedging contract ended up in the Supreme Court with assertion that it was invalid and improperly structured for the benefit of banks.

Thereafter, the Supreme Court ordered the suspension of further payments by CPC and directed that fuel prices must be reduced, the then Petroleum Minister removed and CPC Board reconstituted.

However, the Court order was later lifted in early 2009 as the Government failed to adhere to the directions of reducing fuel prices or removing the Minister. The matter failed to be resolved amicably as Government and banks stuck to their original positions and went for international arbitration and legal proceedings.

Analysts said that stakes were high for both parties but that neither wanted to give in based on their firm beliefs. The Government backed by a competent legal team is confident that it has a valid case, whilst the foreign banks are convinced of their stand as well.