ANZ Bank caught in bond legal case

The Ho Chi Minh Stock Exchange-listed (HoSE) Interfood Shareholding Company (IFS) last week announced that the firm had filed an appeal against the first instance court’s  judgment.

The contract between ANZ and IFS involved a bond issue supposed to be offered by IFS via private placement with ANZ as the arranger of the said proposed bond issue.

An IFS’ representative told VIR the firm was not satisfied with the judgment because this court  overlooked certain points concerning the State Securities Commission (SSC) and State Bank’s regulations on securities trading.

“To underwrite a bond issuance, ANZ must be licenced by both the State Bank and SSC. ANZ obtained the State Bank’s licence  in June 2008, meanwhile, the advisory contract for underwriting bonds was signed in December, 2007 and the SSC had not issued regulations to allow ANZ to underwrite the bond issue. Therefore, this contract would have been void from the date of signing,” the representative said.

The advisory contract was signed on December 18, 2007. Accordingly, ANZ would underwrite  IFS' VND 650 billion bond issue (approximately $34.2 million) in 2008 subject to satisfaction of several conditions. 

Apart from this proposed bond issue, ANZ also signed a facility agreement with IFS for a bridge loan of  $18 million on the condition that the bond issue’s proceeds would be used to repay the loan.

ANZ made available $4 million to IFS in March, 2008. However, because of adverse financial market conditions in 2008, the bond issue was not launched and ANZ cancelled the said bridge loan IFS.

In October 2009, IFS commenced legal proceeding against ANZ, requesting the People’s Court of Hanoi to declare the advisory contract void and to uphold a claim for damages of up to VND280 billion ($14.7 million) for loss incurred by IFS as a result of abortion of the bond deal.

An ANZ's representative declined to comment, citing the matter was still subject to appeal. “It is, thus, not appropriate for ANZ to comment.”

However, the bank’s representative said in the first instance hearing in March 2010, the court found that ANZ had performed its obligations under the bond mandate and did not breach any of its commitments.

According to the first instance court’s judgment, pursuant to Resolutions  04/2003/NQ-HDTP of the Supreme People’s Court dated May 27, 2003, the advisory contract was still valid because upon emergence of the dispute, ANZ has capacity to engage in bond underwriting business. Therefore, the court rejected  IFS’ argument that the contract was void.

Moreover, according to the advisory contract, ANZ would underwrite the bond issue  only if all conditions defined  in the contract were satisfied, the court found. For example, there were no material adverse changes to IFS’ financial conditions or the financial  market conditions. However, in fact, these events had occurred  and thus the conditions for ANZ to perform its obligations were not satisfied and ANZ would not have to indemnify IFS.

In a document  sent to SSC on August 18, 2010, IFS declared that ANZ refused to perform the contract by reason of the adverse financial conditions of IFS, despite the fact that IFS paid VND2.43 billion, or 30 per cent of the underwriting fee and frequently asked ANZ to fulfill its responsibility .

HoSE on August 16, 2010 suspended trading in shares of IFS on the ground that the company suffered losses for the last two consecutive years 2008-2009.

IFS alleged that ANZ did not have adequate legal capacity to underwrite the bond issue and this was a cause of  IFS’ failure to expand its business activities and subsequently suffered a heavy loss.

After IFS’ filing the appeal against the first instance decision, the court of appeal has accepted to hear the appeal. However, the date for appeal hearing has yet to be set.