Gramercy Responds to False Accusations by Peruvian Government on Land Bonds

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• Latin America - español

Gramercy welcomes any discussion concerning the current situation of the Land Reform Bonds.  However, it feels compelled to set the record straight on a number of factually inaccurate statements and half-truths included in the Ministry of Economy and Finance (MEF) press release of yesterday.

First, the MEF's admonition that Gramercy refuses to follow a duly established administrative procedure for authentication, registration, valuation and payment of the Land Reform Bonds, ignores the fact that the current process is a sham.  Gramercy has rightly refused to participate in that process – just like thousands of other bondholders – because, among other things, it offers no value. This is something that the government has never seriously denied.  For example, Gramercy owns Bond N^o 008615, a photograph of which is set forth below: (Figure 1)

As clearly illustrated above, Bond N^o 008615 had an original face value when issued in 1972 of 10,000 Soles de Oro and about half its coupons remaining. Under the Consumer Price Index (CPI) methodology, it is worth US $16,161.  Under the MEF valuation formula issued by Ambassador Luis Castilla and implemented by Minister Segura, however, that same bond is worth less than one penny.  Obviously, the same devastating effects apply to all Land Reform Bonds – not just Gramercy's. These numbers are nonsensical, but the government continues to publicly rely upon and promote a process that produces such results.  Unfortunately for the few bondholders that have submitted to this sham process, the MEF formula is so complicated that it has a predatory effect on unsophisticated investors.  Gramercy has tried by all means available to elicit a response from the government on this, and its silence is telling.  We challenge the MEF to publicly state the amount it is offering to compensate Gramercy for Bond N^o 008615 under its current formula set forth in the 2014 Supreme Decrees.

Second, the government continues to state that the 2014 Supreme Decrees were issued in accordance with the Constitutional Tribunal Order of July 2013.  This is not so.  The MEF went far beyond the Constitutional Tribunal's mandate.  On its face, the July 2013 Constitutional Tribunal Order instructed the MEF to pay the Land Reform Bonds at current value through a dollarization methodology and paying the interest rate of the US treasury Bonds.  The MEF did not do that, because – through an erroneous formula and inadequate rates of interest – it offers no value at all.  But in any case, the July 2013 Constitutional Tribunal Order is tainted with accusations of forgery.  There are two ongoing criminal investigations against members of the Constitutional Tribunal for using white-out to change what was once a majority opinion endorsing CPI into the purported dissent of one of the Justices without his consent.  Three out of the six sitting Justices at the time – Justices Eto, Mesia and Calle Hayen – have publicly said a crime was committed by forging a dissent.  This is not "propaganda," as the MEF wants to call it, these are indisputable facts that are clearly evidenced by the following photograph of the July 2013 Constitutional Tribunal Order that shows signatures altered by white-out. (Figure 2)

We challenge the MEF to publicly confirm or deny whether the July 2013 Constitutional Tribunal Order has been forged.

Third, the proposition that Peru, through the Special Commission that represents the State in Investment Disputes (the "Commission") participated "in discussions and communications with Gramercy in good faith" but that Gramercy "resorted to threats and blackmail," demanding that Peru sign a "biased agreement to waive its rights under the Treaty" is demonstrably false.

After filing its Notice of Intent to Commence Arbitration in February 2016, Gramercy actively sought amicable and productive negotiations with the Commission, and actually proposed not to commence arbitration in order to facilitate discussions, which Gramercy understood was one of the objectives of the Commission.  The only thing that Gramercy asked in return was not to be prejudiced, asking that Peru sign a straightforward "tolling agreement" to suspend the running of the TPA's 3-year statute of limitations.  The Commission, however, was unwilling to sign a standard "tolling agreement" or, until very late last week, even provide written comments to a draft that had been delivered by Gramercy as early as March 28.  What the MEF calls a "more balanced" agreement was actually a new and totally unacceptable last-minute proposal delivered by the Commission last Friday afternoon.  This last minute proposal delivered by the MEF did not offer to toll all of Gramercy's claims under the TPA and sought to impose unreasonable contractual obligations on Gramercy that are outside the scope of any standard tolling agreement.  Besides the failure to properly engage Gramercy on a tolling agreement to allow the parties additional time to discuss a resolution, the Commission did not once during the prior four months offer to discuss the substance of Gramercy's claims.  We invite the Commission to provide the public with copies of all written correspondence with Gramercy.

Fourth, Gramercy has never conducted a "negative campaign" to "hurt Peru and Peruvians."  Quite to the contrary, Gramercy has the highest regard for Peru and Peruvians.  Far from a negative campaign against Peru, Gramercy has brought to the attention of the public and current government factually accurate information about the Land Bonds and Peru's treatment of them, rightfully joining – as a bondholder – a discussion that has been out in the public for decades.  Gramercy invites Peru to identify any statement of Gramercy that has been factually inaccurate and welcomes further public discussion about the matter.

Fifth, Peru's continued reliance on the major credit agencies is nonsensical in light of recent media coverage.  In yesterday's press release, Peru cites its investment grade rating and a report issued by Moody's last December with respect to the Land Reform Bonds.  However, as reported yesterday by the Financial Times, none of the major rating agencies are willing to rate the Land Reform Bonds.  Several state that they need additional information in order to rate the Land Reform Bonds.  We urge Peru to provide the major credit agencies with whatever information they require to properly rate the Land Reform Bonds.

Finally, Gramercy has articulated its claims in its Notice of Arbitration and Statement of Claim, which is now publicly available.  The proposition that the Land Reform Bonds are somehow different from cotemporaneous sovereign bonds because they were issued long ago in local currency is shocking.  The TPA is clear in that respect, and Peru simply cannot cherry-pick what obligations to comply with or how to comply with them.  Gramercy is confident it will be vindicated by an impartial international tribunal, including dismissing any potential allegation that Gramercy's investments are not covered by the TPA.

Despite the foregoing, Gramercy continues to believe that a consensual and amicable solution to this problem will benefit all the parties.  If at any time the current or the next administration wishes to change this approach and work constructively with Gramercy to find a solution, Gramercy will of course welcome those efforts.

About Gramercy:

Gramercy is a US $6.3 billion dedicated emerging markets investment manager based in Greenwich, CT with offices in London, Hong Kong, Singapore and Mexico City, and a presence in Lima and Buenos Aires. The firm, founded in 1998, seeks to provide investors with superior risk-adjusted returns through a comprehensive approach to emerging markets, supported by a transparent and robust institutional platform. Gramercy offers both alternative and long-only strategies across all emerging markets asset classes including USD debt, local currency debt, high yield corporate debt, distressed debt, equity, private equity and special situations. www.gramercy.com  

Photo - http://photos.prnewswire.com/prnh/20160603/375507-INFO
Photo - http://photos.prnewswire.com/prnh/20160603/375508-INFO

SOURCE Gramercy Funds Management