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Wednesday, June 07, 2006

Citizens Bank sues Govt. over
defaulting Bauxite Bonds

In what is being seen as an eminent move, Citizens Bank has moved to the High Court in relation to the Government's default on its US$20M bauxite bonds, which matured on May 17.

The writ, issued on June 1 by Senior Counsel Rex Mc Kay, Senior Counsel Miles Fitzpatrick and Senior Counsel Edward Luckhoo, stated that if the amount claimed had been paid within four days further proceedings would have been stayed.

Sources state that this was not done.

According to court documents, Citizens Bank Guyana Inc. identified as the plaintiff in the case is claiming firstly US$21,482,167.62 and secondly 4,001,296.74Euros, being monies due and payable to the plaintiff as the registered legal and beneficial owner of the said bonds.

The bank also claims a 5% per annum rate from May 18, 2006 until fully paid.

The Attorney General, Doodnauth Singh, is the defendant in the case and has to respond in person on Monday June 19. Failure to do so could see judgment being given to the plaintiff.

Citizens Bank is one of many bondholders involved in a sub-participation agreement on bauxite bonds originally issued to creditors of Guyana Mining Enterprise (GUYMINE) in 1994 following the restructuring of the bauxite industry.

Court documents stated that on January 4 this year the Minister of Finance Sasenarine Kowlessar wrote to Alan Parris, the Managing Director of Citizens Bank, admitting that the plaintiff is the registered holder of the sold bonds.

Further, the documents stated that on May 18 this year the plaintiff wrote the Accountant General, Ministry of Finance, Hardutt Autar, indicating to him that the plaintiff will present and surrender the sold bonds for payment.

“Paragraph 3 of our bond Documents specifies that the bonds are redeemable by payment of outstanding principal and interest, payable upon presentation and surrender of the bond at your office. In this connection, please advise us of a convenient time when we may present our bonds and receive payment in regard of our matured bonds,” the letter stated.

Court documents suggest that Autar never responded.

The plaintiff claims that, at a meeting held at the Ministry of Finance on May 4, the Minister of Finance verbally advised officers of the bank that the Government was seeking a minimum of 90% debt relief by arbitrarily applying Paris Club terms to payment of the bonds.

The lawsuit claims that on May 24 officers employed by the plaintiff met with Autar at his office to present and surrender the said bonds and receive payment of the principal and outstanding interest due.

Further, the suit noted that, upon presentation of the said bonds for surrender, Autar told the officers that he was advised not to accept the bonds and refused to make payment of the amount due on any of the bonds that total 15.

Government's decision to use Paris Club terms has not been well received in financial circles.

A financial source said that to use the Paris Club Terms would be flawed, since those debt relief terms apply to national debt where relief is granted country to country.

The government has been mum on how it will go about using the Paris Club Terms, but a source indicated that the Paris Club Terms have broadened relief measures to include debt owing to multilateral agencies like the IMF and the World Bank.

But President of the Banker's Association, Michael Archibald, like fellow experts, believes that the Paris Club Terms could in no way be applicable to a purely commercial bond.

Financial experts agree that the move by the bank to resort to legal proceedings underscores the importance of the bonds, because in many cases Government financial instruments account for a major part of revenues generated by many of the local financial institutions

Archibald told Kaieteur News that many financial institutions are concerned by the Government's apparent inaction in settling the issue expeditiously.

“Anybody that has Government financial instruments would have to be concerned,” Archibald said.

Archibald, who is also the Managing Director of Republic Bank ( Guyana ), told Kaieteur News yesterday that the Government's decision to seek Paris Club Terms on the bonds after they defaulted was not in the original agreement.

He noted that the Government has stuck to its word by honouring the agreement to pay an annual interest on the bonds, and could not understand why they would default when the bonds matured.

Archibald further stated that the Government should have entered into some form of consultation with bondholders as is done with other defaulters.

There are several other bondholders who have remained silent.

Yesterday the Government refused to comment as members of the financial spectrum tried to contact the Minister of Finance Kowlessar to no avail.

Kaieteur News understands that the issue was discussed at yesterday's cabinet meeting, and details could be released today during Dr. Roger Luncheon's post-cabinet media briefing.

Kaieteur News