COMMERCIAL COURT RULES AGAINST GOG IN BOND DEFAULT

UNCLAS GEORGETOWN 000694

SIPDIS

WHA/EPSC - ED MARTINEZ
SIPDIS

E.O. 12598: N/A
TAGS: EFIN PGOV KJUS ECON GY
SUBJECT: COMMERCIAL COURT RULES AGAINST GOG IN BOND DEFAULT

Ref: GEORGETOWN 530


1. On July 12, 2006, Guyana's newly christened Commercial Court
ruled in favor of a plaintiff who had sued the GOG after it
defaulted on a $US201,085 bond. The bondholder, Carol Correia, sued
the GOG on June 29, 2006 seeking the principal plus 5% interest on
the 12-year bond, which matured on May 17. Correia's affidavit
claimed that Accountant General Hardat Outar refused to accept the
bonds and make payment when she tried to redeem them in early June.
The Commercial Court made its ruling after a representative of the
Attorney General's office failed to appear.


2. This ruling would seem to set a precedent for the roughly US$25
million Guymine bond default that made headlines just over one month
ago (Reftel). Citizens Bank, a subsidiary of Banks DIH (owner of
Guyana's flagship brewery) and holder of US$21.7 million of the
bonds, sued the GOG after the Finance Ministry announced on June 1
that it intends to seek Paris Club like terms for repayment. The GOG
argues that the comparable treatment clause (Clause III, Paragraph
1) of the Paris Club Agreed Minutes of January 14, 2004, prevents it
from according more favorable treatment to non-Paris Club creditors
and contends that repaying the Guymine debt, specified by name in
the Agreed Minutes, would jeopardize debt relief as a result.
However, several financial commentators, including former Finance
Minister Asgar Ally, under whose tenure the Paris Club terms were
agreed to, suggest that the GOG would be better advised to roll the
Guymine debt into U.S. dollar bonds or Guyana dollar denominated
bonds fixed to the U.S. T-bill interest rate, arguing that the Paris
Club has allowed repayment of commercial debt in similar instances.



3. The GOG's failure to appear seems puzzling. Paul Geer, head of
the Financial Intelligence Unit, told EconOff that officials within
the Attorney General's office told him the Attorney General was
unaware of the suit. Geer, a former banker, speculates that, behind
the scenes, the GOG may be deliberately dragging its heels so that
it can then use a local court ruling ordering it to honor domestic
bonds as justification for repaying the Guymine debt despite
previously arguing that it was bound not to do so by the Paris Club
Agreed Minutes. He also notes that an all-out default by the GOG
will bankrupt Citizens Bank and possibly bring down the DIH
conglomerate.


4. COMMENT: The timely ruling bodes well for the Commercial Court,
which was established with assistance from the Inter-American
Development Bank. The court was formally established on June 7, 2006
with a docket of twelve cases. The judgment against the GOG suggests
the court is impartial, so far, and the quick deliberation is a
positive sign that it is not subject to the lengthy delays that
plague to rest of the judicial system. END COMMENT.

THOMAS