Peruvian bond investor Gramercy awarded $100 million via arbitration

By Wendy Van Sickle

Columbus, Ohio, Dec. 14 – The Republic of Peru was ordered by an arbitration tribunal to pay a U.S. investor in its agrarian reform bonds $100 million, according to a news release from the investor, Gramercy Funds Management LLC and Gramercy Peru Holdings LLC.

The tribunal ruled in Gramercy’s favor on its main claim against Peru under the United States–Peru Trade Promotion Agreement.

The tribunal rejected Peru’s objections to its jurisdiction and the admissibility of Gramercy’s claims, according to the release. The $100 million in damages and costs awarded by the tribunal is much more than the approximately $861,000 Peru had offered in 2014, Gramercy said.

The base financial award will continue to accrue compound interest at a rate of 7.22% until full payment.

Peru's appointed arbitrator issued a dissenting opinion.

“The tribunal found that, despite directions from Peru's highest constitutional court to pay the long-matured bonds at their properly updated value, Peru's Ministry of Economy and Finance established a payment formula and bondholder compensation process that were arbitrary and unjust, did not comply with the constitutional court's instructions, and were designed to minimize the amounts payable to bondholders,” Gramercy said in the release.

“The tribunal also established that several aspects of the Ministry's payment formula had no reasonable justification, that Peru's witnesses and experts could not explain key elements of the formula, and that the ministry's approach could be explained only by the improper goal of reducing the amounts that bondholders would receive.”

The tribunal further found the payment process singled out Gramercy for unfair treatment, according to the release.

"We are pleased that the decision recognized Peru's breach of its Treaty obligations to U.S. investors and awarded significant compensation to Gramercy, whose investors include millions of pensioners, unions, universities, endowments and foundations that have patiently waited many years for this outcome,” Gramercy said in the release.

Gramercy, an emerging markets investment manager based in Greenwich, Conn., was represented in this matter by Debevoise & Plimpton.

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