02 12 12 Hemisphere Associates responds to inaccurate and misleading media reports
Factually
inaccurate and highly sensationalized media reports by a free-lance
reporter that have recently appeared concerning an investment by FG
Hemisphere Associates (FG) in debt owed by the Democratic Republic of
Congo (DRC). I’d like to begin clearing up a number of these factual
inaccuracies and to provide some context.
inaccurate and highly sensationalized media reports by a free-lance
reporter that have recently appeared concerning an investment by FG
Hemisphere Associates (FG) in debt owed by the Democratic Republic of
Congo (DRC). I’d like to begin clearing up a number of these factual
inaccuracies and to provide some context.
The
story is much more complicated than is being portrayed. First of all, we
are not seeking $100 million or anything close to it. We have had to
sue the DRC because, despite ten years of effort and four written
settlement agreements, all of which offered the DRC significant
discounts from what was owed, the DRC has never completed any of these
settlements after agreeing to them. We’ve been left with no other option
but to sue, and when you sue, you obviously sue for what you are owed.
So, yes, we are “claiming” 100% of what we are owed – in the lawsuit.
But that is not what we have sought from the DRC in our negotiations or
have been (and remain) prepared to accept, as the DRC fully knows.
story is much more complicated than is being portrayed. First of all, we
are not seeking $100 million or anything close to it. We have had to
sue the DRC because, despite ten years of effort and four written
settlement agreements, all of which offered the DRC significant
discounts from what was owed, the DRC has never completed any of these
settlements after agreeing to them. We’ve been left with no other option
but to sue, and when you sue, you obviously sue for what you are owed.
So, yes, we are “claiming” 100% of what we are owed – in the lawsuit.
But that is not what we have sought from the DRC in our negotiations or
have been (and remain) prepared to accept, as the DRC fully knows.
The
purchase of these claims by FG is highly beneficial to the country and
to the Congolese people, in the following two ways. First, investors
into high-risk environments like the DRC need to know that a market
exists for their contractual claims if things do not work out. Knowing
that that market exists, and that they can obtain at least something for
these claims in the worst case scenario, lessens the risks associated
with making these investments. Lessening the risk lowers the cost to the
country of attracting the investment in the first place.
purchase of these claims by FG is highly beneficial to the country and
to the Congolese people, in the following two ways. First, investors
into high-risk environments like the DRC need to know that a market
exists for their contractual claims if things do not work out. Knowing
that that market exists, and that they can obtain at least something for
these claims in the worst case scenario, lessens the risks associated
with making these investments. Lessening the risk lowers the cost to the
country of attracting the investment in the first place.
Even
more tangibly and immediately, in the course of trying to resolve these
claims, we examine and investigate in detail the commercial dealings of
the country. In the case of the DRC, that generally has meant examining
the government’s transactions involving its very substantial, natural
resources. That activity in turns brings much needed transparency into
how the country’s leadership is managing those resources. With our
financial means, special expertise and investigative experience, few
have done more than FG and other private creditors to bring transparency
to how certain countries (for example, Congo-Brazzaville – the "other"
Congo) are utilizing their natural resources, a fact recognized and
acknowledged by media outlets as diverse as the Sunday Times, Washington
Times and Al Jazeera (Part 1 and Part 2).
more tangibly and immediately, in the course of trying to resolve these
claims, we examine and investigate in detail the commercial dealings of
the country. In the case of the DRC, that generally has meant examining
the government’s transactions involving its very substantial, natural
resources. That activity in turns brings much needed transparency into
how the country’s leadership is managing those resources. With our
financial means, special expertise and investigative experience, few
have done more than FG and other private creditors to bring transparency
to how certain countries (for example, Congo-Brazzaville – the "other"
Congo) are utilizing their natural resources, a fact recognized and
acknowledged by media outlets as diverse as the Sunday Times, Washington
Times and Al Jazeera (Part 1 and Part 2).
Regarding
the DRC itself, just last month a Member of Parliament in the United
Kingdom, Eric Joyce, alleged (backed by substantial documentation) that,
in the last two years alone, the current administration has “lost” 5.5
billion dollars through "questionable mining deals" sold through BVI
companies whose ownership is hidden. His allegations were backed by the
NGO Global Witness, which had also been investigating some of the same
transactions.
the DRC itself, just last month a Member of Parliament in the United
Kingdom, Eric Joyce, alleged (backed by substantial documentation) that,
in the last two years alone, the current administration has “lost” 5.5
billion dollars through "questionable mining deals" sold through BVI
companies whose ownership is hidden. His allegations were backed by the
NGO Global Witness, which had also been investigating some of the same
transactions.
We have been looking into DRC’s
natural resource transactions for years. So have a diverse group of
other concerned parties including Mr. Joyce, Global Witness, The Carter
Center, journalists, creditors and other contractually-aggrieved
parties. The ultimate beneficiaries are the Congolese people as the
transparency that this effort engenders helps ensure that their natural
resources are being utilized for their benefit rather than just for a
few at the top (the “1%”, as the current saying goes).
natural resource transactions for years. So have a diverse group of
other concerned parties including Mr. Joyce, Global Witness, The Carter
Center, journalists, creditors and other contractually-aggrieved
parties. The ultimate beneficiaries are the Congolese people as the
transparency that this effort engenders helps ensure that their natural
resources are being utilized for their benefit rather than just for a
few at the top (the “1%”, as the current saying goes).
It
is healthy for these governments, and vitally important to their
citizens, to have independent, third parties from outside the country
scrutinizing how these governments manage their country’s resources.
This kind of scrutiny can only be done effectively by parties that have
the financial means, expertise and motivation to do it and who cannot be
intimidated, jailed or worse for asking difficult questions or
revealing sensitive information. It is no different than the kind of
transparency that we have come to expect of our own governments and the
companies in our financial markets. Such transparency only arises
because there are parties with a vested interest in the financial
activities of these entities, most often creditors, investors and their
advisors.
is healthy for these governments, and vitally important to their
citizens, to have independent, third parties from outside the country
scrutinizing how these governments manage their country’s resources.
This kind of scrutiny can only be done effectively by parties that have
the financial means, expertise and motivation to do it and who cannot be
intimidated, jailed or worse for asking difficult questions or
revealing sensitive information. It is no different than the kind of
transparency that we have come to expect of our own governments and the
companies in our financial markets. Such transparency only arises
because there are parties with a vested interest in the financial
activities of these entities, most often creditors, investors and their
advisors.
I want to address one or two specific
allegations in these stories. First, FG did not seek out DRC claims
because the DRC’s debt was about to be extinguished or because it was
poor. We were approached to purchase the claim because Energoinvest (the
original claim holder) needed liquidity. It had gone into the DRC,
built electrical infrastructure worth many tens of millions of dollars,
was not paid for its work and now faced potential financial ruin because
of its country’s own civil war. Regarding the DRC, we believed that the
country was turning a corner politically in 2001. Moreover, while
recognizing that they had been poorly managed to date, the country
obviously had extraordinary natural resource wealth (the Guardian
estimates it at 24 trillion dollars), given which we felt confident that
over time we could find some way to work out these claims.
allegations in these stories. First, FG did not seek out DRC claims
because the DRC’s debt was about to be extinguished or because it was
poor. We were approached to purchase the claim because Energoinvest (the
original claim holder) needed liquidity. It had gone into the DRC,
built electrical infrastructure worth many tens of millions of dollars,
was not paid for its work and now faced potential financial ruin because
of its country’s own civil war. Regarding the DRC, we believed that the
country was turning a corner politically in 2001. Moreover, while
recognizing that they had been poorly managed to date, the country
obviously had extraordinary natural resource wealth (the Guardian
estimates it at 24 trillion dollars), given which we felt confident that
over time we could find some way to work out these claims.
We
purchased the claim at a discount, as one would expect given that the
claim had not been paid in nearly ten years. There is a market price for
non-performing loans from all emerging market countries and we bought
this loan at that market price. But it has been portrayed as if that is
all we have ever had to invest; far from it. The purchase cost was just
the beginning. We have tried to resolve this claim amicably with the DRC
for ten years now. Throughout, we have only ever sought a fair and
reasonable resolution. We have tried to be extremely flexible in how it
might get worked out, including the use of concessions or instalment
payments and even the forward sale of electrical power as alternative
approaches. All of them would have involved future, purely
business-related revenues of the government. All of these proposed
solutions were rejected. We have reached agreement in writing on four
separate occasions, all of which agreements gave the DRC a substantial
discount on what was owed – far greater discounts than the country
accepted in a number of settlements in recent years with other private
creditors. The DRC consistently failed to complete these deals after
agreeing to them. Only last year, we agreed in writing to an effective
discount net of enforcement of 66%. The DRC walked from the deal after
we spent weeks trying to close it, at a cost to us of over $400,000 in
legal fees.
purchased the claim at a discount, as one would expect given that the
claim had not been paid in nearly ten years. There is a market price for
non-performing loans from all emerging market countries and we bought
this loan at that market price. But it has been portrayed as if that is
all we have ever had to invest; far from it. The purchase cost was just
the beginning. We have tried to resolve this claim amicably with the DRC
for ten years now. Throughout, we have only ever sought a fair and
reasonable resolution. We have tried to be extremely flexible in how it
might get worked out, including the use of concessions or instalment
payments and even the forward sale of electrical power as alternative
approaches. All of them would have involved future, purely
business-related revenues of the government. All of these proposed
solutions were rejected. We have reached agreement in writing on four
separate occasions, all of which agreements gave the DRC a substantial
discount on what was owed – far greater discounts than the country
accepted in a number of settlements in recent years with other private
creditors. The DRC consistently failed to complete these deals after
agreeing to them. Only last year, we agreed in writing to an effective
discount net of enforcement of 66%. The DRC walked from the deal after
we spent weeks trying to close it, at a cost to us of over $400,000 in
legal fees.
As a result of these constant
settlement failures over ten years, we now have incurred over $20
million in costs. So the idea that we have invested $3 million and we
are trying to get $100 million, is a completely mischaracterization of
the situation. We are in for much more than $3 million, and we have been
(and remain) more than willing to settle for very substantially less
than we are owed.
settlement failures over ten years, we now have incurred over $20
million in costs. So the idea that we have invested $3 million and we
are trying to get $100 million, is a completely mischaracterization of
the situation. We are in for much more than $3 million, and we have been
(and remain) more than willing to settle for very substantially less
than we are owed.
We have also been portrayed
as seeking to take monies designated for development and poverty
alleviation. That is completely untrue. Regarding any legal actions by
us, we are prevented from attaching funds or assets of any kind that are
used or designated for aid, development, poverty relief or any other
social issues of that kind. Under existing law in effect throughout the
world, the legal doctrine known as “sovereign immunity” allows us only
to obtain assets or revenues of the DRC that are not allocated for such
“sovereign” purposes. That is, in simple terms, we can only attach and
collect from government assets or revenues that are being used for
“commercial” or “business” purposes. Thus, we cannot possibly, ever (nor
would we want to) interfere with aid or funds used for development,
poverty relief or any similar purpose.
as seeking to take monies designated for development and poverty
alleviation. That is completely untrue. Regarding any legal actions by
us, we are prevented from attaching funds or assets of any kind that are
used or designated for aid, development, poverty relief or any other
social issues of that kind. Under existing law in effect throughout the
world, the legal doctrine known as “sovereign immunity” allows us only
to obtain assets or revenues of the DRC that are not allocated for such
“sovereign” purposes. That is, in simple terms, we can only attach and
collect from government assets or revenues that are being used for
“commercial” or “business” purposes. Thus, we cannot possibly, ever (nor
would we want to) interfere with aid or funds used for development,
poverty relief or any similar purpose.
The
impression that these news stories have created is that that is
precisely what we are trying to do through our legal action in Jersey.
The Jersey action involves funds due to the DRC from the sale of cobalt.
Even if FG were to drop this action entirely, the funds released would
go to an entity engaged in mining-related activities. It would not go to
the DRC treasury or to development or any other similar sovereign
purpose.
impression that these news stories have created is that that is
precisely what we are trying to do through our legal action in Jersey.
The Jersey action involves funds due to the DRC from the sale of cobalt.
Even if FG were to drop this action entirely, the funds released would
go to an entity engaged in mining-related activities. It would not go to
the DRC treasury or to development or any other similar sovereign
purpose.
Putting aside our legal actions, the
other complaint made is that companies like FG, by suing the country,
indirectly force these countries to divert money saved from debt relief
and that “have been earmarked for poverty reduction, education and
health”. This misconceives how debt relief operates. There is no
requirement under the IMF’s “HIPC” debt relief initiative that debt
relief has to be allocated by the country to poverty reduction,
development or indeed any particular purpose. The government is free to
use these funds any way that it chooses to. In the DRC, that would
suggest about 22% of it would be used for such purposes based on its
2011 budget. But the real point is that these are commercial claims that
should and can be resolved entirely out of the country’s purely
commercial revenues and assets that by their very nature would, under
any circumstance, never be applied to development, poverty alleviation
or any such social purpose. Indeed, less than one per cent of just what
is alleged by Eric Joyce MP to have been “lost” in the last two years
alone would have funded entirely the settlement FG reached with the DRC
last year.
other complaint made is that companies like FG, by suing the country,
indirectly force these countries to divert money saved from debt relief
and that “have been earmarked for poverty reduction, education and
health”. This misconceives how debt relief operates. There is no
requirement under the IMF’s “HIPC” debt relief initiative that debt
relief has to be allocated by the country to poverty reduction,
development or indeed any particular purpose. The government is free to
use these funds any way that it chooses to. In the DRC, that would
suggest about 22% of it would be used for such purposes based on its
2011 budget. But the real point is that these are commercial claims that
should and can be resolved entirely out of the country’s purely
commercial revenues and assets that by their very nature would, under
any circumstance, never be applied to development, poverty alleviation
or any such social purpose. Indeed, less than one per cent of just what
is alleged by Eric Joyce MP to have been “lost” in the last two years
alone would have funded entirely the settlement FG reached with the DRC
last year.
There is also the notion that we are
not offering the same debt relief that other, official and private
creditors have offered. This notion is based on the belief that all
creditors of the DRC have offered the same, uniform amount of debt
relief under the HIPC initiative. In fact, under HIPC itself, the
countries are free to work out their arrangements with their private
creditors on a voluntary basis on whatever terms they want. The Paris
Club has urged the DRC to obtain “comparable” debt relief from its
private creditors, but it does not insist upon it and in fact
specifically carves out an exception for claims that represent a small
portion of the country’s overall indebtedness. In the DRC, ALL of its
private creditor debt, collectively, amounts to only 2 ½ percent of the
country’s overall external indebtedness. The balance, and vast majority
of DRC’s external debt – 97.5% – is debt lent by the Paris Club and
other “official” creditors.
not offering the same debt relief that other, official and private
creditors have offered. This notion is based on the belief that all
creditors of the DRC have offered the same, uniform amount of debt
relief under the HIPC initiative. In fact, under HIPC itself, the
countries are free to work out their arrangements with their private
creditors on a voluntary basis on whatever terms they want. The Paris
Club has urged the DRC to obtain “comparable” debt relief from its
private creditors, but it does not insist upon it and in fact
specifically carves out an exception for claims that represent a small
portion of the country’s overall indebtedness. In the DRC, ALL of its
private creditor debt, collectively, amounts to only 2 ½ percent of the
country’s overall external indebtedness. The balance, and vast majority
of DRC’s external debt – 97.5% – is debt lent by the Paris Club and
other “official” creditors.
Consistent with
that approach, within the last three years the DRC has settled with a
number of its other, private creditors at 100% of what was owed, to the
tune of $120 million dollars, and neither the Paris Club nor the IMF
(nor Jubilee or any other NGO) has complained. FG has never asked for
100% of what it is owed in any of its negotiations. Far from it; we have
agreed in writing to discounts as high as 66%. So the notion that we
are insisting on being paid in full is simply not true. These news
reports are basing this idea on what we have claimed in our lawsuits
(again, you claim what you are owed). We are not looking or expecting to
recover that amount, and have always been prepared to accept much less.
Suing the DRC is our last and least preferred resort, after it has
failed to complete several deals that it agreed to in writing.
that approach, within the last three years the DRC has settled with a
number of its other, private creditors at 100% of what was owed, to the
tune of $120 million dollars, and neither the Paris Club nor the IMF
(nor Jubilee or any other NGO) has complained. FG has never asked for
100% of what it is owed in any of its negotiations. Far from it; we have
agreed in writing to discounts as high as 66%. So the notion that we
are insisting on being paid in full is simply not true. These news
reports are basing this idea on what we have claimed in our lawsuits
(again, you claim what you are owed). We are not looking or expecting to
recover that amount, and have always been prepared to accept much less.
Suing the DRC is our last and least preferred resort, after it has
failed to complete several deals that it agreed to in writing.
I
want to put to rest another misimpression from these reports. It was
suggested that FG filed its legal action in Jersey in some devious way
in order to evade the UK debt relief legislation. We filed our action in
Jersey in March 2009 – a year before the UK law was even passed.
Secondly, Jersey is the only “situs” (the legal term for “location”) of
the debt we sought to attach. We could not possibly have brought the
action in England. A Jersey joint venture company owes this debt to the
DRC. As such, we could only ever have proceeded in Jersey.
want to put to rest another misimpression from these reports. It was
suggested that FG filed its legal action in Jersey in some devious way
in order to evade the UK debt relief legislation. We filed our action in
Jersey in March 2009 – a year before the UK law was even passed.
Secondly, Jersey is the only “situs” (the legal term for “location”) of
the debt we sought to attach. We could not possibly have brought the
action in England. A Jersey joint venture company owes this debt to the
DRC. As such, we could only ever have proceeded in Jersey.
It
was also suggested that “other nations bar collections by ‘vultures’”,
and that “vulture funds”, as we have been pejoratively labelled, were
“in effect made illegal in the UK last year”. First, the UK is the ONLY
country that has passed a law in this area. (Belgium has a law
respecting development funds, but that is no different than the
sovereign immunity law I mentioned earlier.) Secondly, even under this
unique, UK law, it’s entirely “legal” to enforce sovereign claims. What
the UK law does is limit what a creditor can recover against certain
sovereigns. It does not “bar” these actions.
was also suggested that “other nations bar collections by ‘vultures’”,
and that “vulture funds”, as we have been pejoratively labelled, were
“in effect made illegal in the UK last year”. First, the UK is the ONLY
country that has passed a law in this area. (Belgium has a law
respecting development funds, but that is no different than the
sovereign immunity law I mentioned earlier.) Secondly, even under this
unique, UK law, it’s entirely “legal” to enforce sovereign claims. What
the UK law does is limit what a creditor can recover against certain
sovereigns. It does not “bar” these actions.
There
is one final, particularly upsetting part of the recent media campaign
against FG that I want to address: the ostensible “illegality” that
purports to surround the purchase of the claims from Energoinvest. Let
me begin by categorically denying that FG itself did anything whatsoever
illegal or inappropriate in this purchase. The stories themselves were
very careful not to specifically allege that FG actually did anything
illegal. Rather, they have tried to imply that something illegal
occurred, and that as a result, the purchase is tainted in some way.
is one final, particularly upsetting part of the recent media campaign
against FG that I want to address: the ostensible “illegality” that
purports to surround the purchase of the claims from Energoinvest. Let
me begin by categorically denying that FG itself did anything whatsoever
illegal or inappropriate in this purchase. The stories themselves were
very careful not to specifically allege that FG actually did anything
illegal. Rather, they have tried to imply that something illegal
occurred, and that as a result, the purchase is tainted in some way.
At
no point since our purchase of the debt over 10 years ago has anyone
ever before raised with us any allegations of impropriety regarding the
purchase – neither Energoinvest nor any Bosnian authority nor anyone
else. No one at the BBC or the Guardian gave us any warning, let alone
details, about what was being alleged by certain people within Bosnia,
nor did they give us an opportunity to make our own inquiries or respond
in any meaningful way.
no point since our purchase of the debt over 10 years ago has anyone
ever before raised with us any allegations of impropriety regarding the
purchase – neither Energoinvest nor any Bosnian authority nor anyone
else. No one at the BBC or the Guardian gave us any warning, let alone
details, about what was being alleged by certain people within Bosnia,
nor did they give us an opportunity to make our own inquiries or respond
in any meaningful way.
Based on such research
as we have subsequently been able to undertake, first and foremost, FG
is not alleged to have done anything wrong whatsoever under Bosnian law
or any other law. Secondly, the purchase was vetted, documented and
closed for FG by a world class law firm, Shearman and Sterling, which
obtained in the process, among other things, a legal opinion from
Energoinvest’s own, outside counsel confirming that the transaction was
duly authorized by the company and was legal in all respects under
Bosnian law. Based on an opinion recently obtained from our own Bosnian
counsel, that remains the case. We relied on Shearman and Sterling to
ensure that all necessary authorizations had been obtained, and I am
sure Shearman and Sterling, among other things, relied in turn on this
opinion rendered by Energoinvest’s outside counsel. When dealing with a
foreign corporation in a foreign country with laws in a foreign
language, there is very little else that one can do to ensure that a
transaction has been completed appropriately in all respects under local
law.
as we have subsequently been able to undertake, first and foremost, FG
is not alleged to have done anything wrong whatsoever under Bosnian law
or any other law. Secondly, the purchase was vetted, documented and
closed for FG by a world class law firm, Shearman and Sterling, which
obtained in the process, among other things, a legal opinion from
Energoinvest’s own, outside counsel confirming that the transaction was
duly authorized by the company and was legal in all respects under
Bosnian law. Based on an opinion recently obtained from our own Bosnian
counsel, that remains the case. We relied on Shearman and Sterling to
ensure that all necessary authorizations had been obtained, and I am
sure Shearman and Sterling, among other things, relied in turn on this
opinion rendered by Energoinvest’s outside counsel. When dealing with a
foreign corporation in a foreign country with laws in a foreign
language, there is very little else that one can do to ensure that a
transaction has been completed appropriately in all respects under local
law.
This is all that I want to put across for
now about these highly inflammatory and misleading reports. We are
going to approach the BBC and the Guardian through appropriate channels
to try to correct some of the more overt errors and misstatements in
these reports, but that can be a long process. I wanted to get this
response out to the wider public quicker than that so that at least you
have some balance and perspective on the story and our responses to it.
now about these highly inflammatory and misleading reports. We are
going to approach the BBC and the Guardian through appropriate channels
to try to correct some of the more overt errors and misstatements in
these reports, but that can be a long process. I wanted to get this
response out to the wider public quicker than that so that at least you
have some balance and perspective on the story and our responses to it.
I
fully understand why these reports would be upsetting to people, none
more than me personally, I can assure you. I hope that the above
information will be of some help in at least understanding that the
situation is neither as simple nor as straightforward as it has been
presented. I thank you for taking the time to try to understand and
appreciate these complexities and nuances of our business and of this
particular situation.
fully understand why these reports would be upsetting to people, none
more than me personally, I can assure you. I hope that the above
information will be of some help in at least understanding that the
situation is neither as simple nor as straightforward as it has been
presented. I thank you for taking the time to try to understand and
appreciate these complexities and nuances of our business and of this
particular situation.
Sincerely,
Peter Grossman
FG Hemisphere Associates,