The largest holder of Cuban debt, CRF I Limited (CRF I Ltd) – which is part of the London Club – filed a lawsuit against the government and the Banco Nacional de Cuba (BCC) in the UK High Court in February 2020. , state-owned according to Undervalued Shares, a website specializing in economics topics.
The Cayman Islands-registered financial company sued Cuba for a total of $100 million. Though the amount is only a small portion of the $1.5 billion in claims CRF I has acquired on behalf of its investors over the years.
The requirement, imposed in 2020, stems from credits stemming from loan agreements that two European banks (Dutch Crédit Lyonnais and Italy’s L’Istituto Bancario Italiano) granted the island more than 30 years ago, in 1982 and 1984 , and in which the BCC acted as guarantor.
The CFR said it decided to take the case to London after the island’s government rejected a 2018 offer of debt relief from the company and other bondholders.
The 2018 bid was made by a group of London Club members which included three investment funds – Stancroft Trust Ltd, Adelante Exotic Debt Fund Ltd and CRF I Ltd – and a commercial bank. Together they own a Cuban debt with a face value of $1.4 billion.
A mutual fund is a collective investment institution that brings together the assets brought in by a number of investors whose aim is to make investments in assets based on a pre-established strategy. Investors are called participants and can be natural or legal persons. The investment fund is managed and represented by a management company, which operates under risk control and with the aim of generating benefits for the participants.
The deal offer was taken as a sign that defaulting bondholders were ready to up the pressure on the island. Which was ratified in further follow-up contacts with the same aim of finding a payment arrangement, most recently in early 2020.
When all attempts were unsuccessful, CRF explained, the company decided to file a claim in the High Court of London independently of the rest of the creditor group that made the 2018 bid, although it remains part of it.
For its part, the London court has called in experts and scheduled an in-person hearing to resolve the case in January 2023.
CRF I Ltd has been investing in unpaid Cuban government debt since 2009 and is a member of the London Club of Private Creditors. The club brings together private banks that have loans to governments and companies. Since 1976, it has been negotiating countries’ debt repayment plans with commercial banks on behalf of its members.
The claims of the owners united in the London Club against Cuba are estimated at 6.4 billion dollars, which accounts for about 10% of the total Cuban claims.
In addition, the Industrial and Commercial Bank of China (ICBC), a state-owned commercial bank believed to be the world’s largest bank, has filed a second lawsuit. In particular, it was the UK subsidiary ICBC Standard Bank of London; which operates under British law and represents and defends the interests of its clients who have old Cuban claims.
In May 2021, in defense of these customers and apparently under pressure from them, the Chinese bank’s London branch filed lawsuits against the Republic of Cuba and its central bank. The claims amount to around 200 million euros in capital and around 1 billion euros in accrued interest
This could force Cuba to resolve the whole matter as China – a strategic ally – is involved, which is under pressure to demand payment from Havana or be sued by its UK subsidiary, as explained by John S. Kavulich , President of the Cuba-US Economic and Trade Council. United States
For its part, Cuba has begun to respond to the demands. Havana has hired “good and aggressive lawyers in the UK to fight the case,” confirms Kaluvich.
The defense of Cuba and the Banco Nacional de Cuba is represented by Ben Davies, a lawyer on the civil litigation team at London-based commercial fraud and asset recovery firm PCB Byrne. Davies specializes in large and complex commercial fraud cases, often involving ancillary proceedings in other jurisdictions.
For its part, CRF-I Ltd has retained Matthew McGill, a partner at Gibson, Dunn & Crutcher, to represent it in its lawsuit against Cuba “including possible litigation,” according to a letter from the firm to Bloomberg News.
Without a response from the defendant, the English court could simply issue what is known as summary judgment on the basis of the information provided by the plaintiff. This could allow creditors to track Cuban assets anywhere in the world.
If the ruling doesn’t favor the Cuban government and it refuses to pay, it could face an international embargo, notes Kavulich. “It could be a Cubana plane. It can be a merchant ship. The court can order litigants to seize any international property owned by the Cuban government,” he says.
That would be the worst outcome for everyone, since “financial firms can find companies interested in investing in Cuba and they can be exempt from taxes. Import taxes can be waived,” says the expert.
Although, according to Undevalued Shares, it is difficult to liquidate this type of business at a time when banks are reluctant to approach sanctioned nations; another reason why negotiations are paralyzed.
When CRF filed the lawsuit in February 2020, its President, David Charters, made it clear that “unless there is a prior agreement that has been satisfactorily negotiated with the Cuban government, the current legal proceedings will not be discontinued.”
In the mid-1980s, Cuba suspended its foreign debt negotiations with creditors. The country stopped honoring its payment agreements in 1986, so it currently has a passive or long-term debt that dates back to when it suspended payments.
The nation’s financial interest forced the country to return to the negotiating table in 2001 as new sources of funding are blocked unless old debts are settled. Finally, in 2015, Havana signed a compromise agreement covering 85% of all outstanding debt.
In parallel, since the 2000s, the island has managed to pay off its legacy debt thanks to direct deals with several of its creditors, including Japan, Germany and Russia. The latter swapped 90% of the defunct USSR’s debts, ending more than 20 years of dispute over the issue.
In March 2015, negotiations between the group and Cuba resulted in a $15 billion debt reduction. The final decision was that Havana would recognize the $2.6 billion figure, clearly a favorable consensus for the debtor.
After these agreements, consensus had yet to be reached on two categories of debt: $9.4 billion in commercial debt, largely organized in the London Club, and pre-revolutionary phase debt with an estimated issuance value of about $150 million Dollar.
In practice, despite Havana’s 2015 deal with Paris Club creditors, the nation remains locked out of international capital markets for failing to negotiate bad debts with London Club creditors.
As of the completion of this information on December 27, 2022, less than a month after the official start of hearings for the lawsuit in the UK Commercial Court, neither the Havana government nor the main national financial entity have any comment on the process or its Management.
A decision against Havana in this lawsuit would affect the country’s international financial operations given the possibility of imposing a possible embargo on assets abroad. However, that possibility would be the result of extensive legal proceedings. In these cases, the debtor’s assets could take years to be confiscated and options would be limited to UK jurisdiction.