Hedge Fund Seeking Arbitration Ruling
Wednesday, June, 29, 2016
A US hedge fund is taking legal action against the government of Peru in an effort to force the country to pay off $1.6 billion in defaulted bonds issued by the former military regime of the country. The case is similar to the one between US hedge funds and Argentina. According to Gramercy Funds Management, a specialist in investing in emerging-market assets, the government refused to negotiate the debt that it bought discounted 10 years ago and is hoping the complete payment.
According to Gramercy, Lima selectively defaulted on land bonds started in 1969, but continued to pay owners of expropriated land into the 1970s while making payment on other debts. It stated the government of President Humala interfered with Peruvian court decisions that were in support of repayment of the bonds that were eventually recalculated to account for inflation.
Gramercy further claimed they deserved payment on a court-designed scale. It issued a notice of arbitration for the full value of the bonds adjusted for inflation under the UN Trade Commission on International Trade Law and US-Peru bilateral trade rules. It stated Peru is stonewalling and said the country’s leaders are refusing to participate in any substantive discussions. They know have no choice but to pursue arbitration.
When Gramercy first brought up arbitration, the Peruvian Finance Minister said his country would oppose legal action outside its territory. The battle began as the tenure of President Humala ended and citizens are heading to the polls for the second round of voting for the presidential election.