Argentem Creek Urges US Court to Prohibit Tristan Oil Fraud Claims by Kazakhstan; Bondholder Outrider Joins Claim Against Argentem

January 27, 2021 Reorg

Emerging market fund Argentem Creek is urging the U.S. courts to prevent Kazakhstan from pursuing fraud claims against the fund in relation to Tristan Oil. In a note dated Jan. 13, the fund said the motion “remains ripe for decision and should be granted.”

Argentem is the largest bondholder of Tristan Oil’s $531 million zero-coupon 2016 senior secured bonds. The fund, along with other international bondholders, have been waiting seven years to receive compensation after the oil company was nationalized by the Kazakhstan government in 2010. Noteholders were awarded around $500 million by the Stockholm Chamber of Commerce in 2013 under the Energy Charter Treaty, or ECT. The notes are currently quoted at 33.5 according to cbonds.

To date, no payments have been made to discharge the award and over $540 million is now due, including legal cost awards, according to Argentem’s website.

In 2017, the Supreme Court of Sweden upheld the award, making it final and non-appealable. The award has also been recognized in a number of jurisdictions, including the U.S., Luxembourg, Belgium, Sweden, Italy, France, and the Netherlands, according to a release. Under a sharing arrangement with the owners of Tristan Oil, U.S. and international bondholders are due to receive approximately 70% of the award. As a result of Kazakhstan’s refusal to honor its commitments and pay the award recognized by various courts in Europe and the U.S., the claimants have succeeded in freezing approximately $6.27 billion of Kazakh state assets in multiple jurisdictions, according to Argentem’s website.

On Aug. 27, 2020, Argentem filed a motion in the U.S. courts for leave to file a motion for preliminary and permanent injunctive relief, which seeks to enjoin the Republic of Kazakhstan from pursuing its claims against the Argentem Parties in the New York action.

On Dec. 31, Kazakhstan demanded a trial by a jury in the U.S. courts against Tristan Oil’s former owners, the Statis family, as well as Argentem Creek for allegedly working with the company on six counts of fraud including allegedly defrauding Tristan Oil’s bondholders. A former bondholder, Outrider, joined this claim against Argentem, according to the amended complaint. Outrider sold out of the notes in 2016 at a significant loss, according to the complaint.

Norton Rose Fulbright is representing Kazakhstan. Akin Gump is representing Argentem Creek. Paul Butler from Akin Gump said: “Adding Outrider as a claimant is just another diversionary litigation tactic by Kazakhstan’s Ministry of Justice aimed at frustrating the payment of the ECT award — an award that was granted after a Swedish Arbitration panel ruled that Kazakhstan had illegally nationalized the assets related to Tristan Oil.”

“The allegations by Outrider are entirely baseless, as are the allegations brought by Kazakhstan. The Svea Appeals Court and the Swedish Supreme Court’s decisions upholding the award remain final and non-appealable. The Ministry of Justice is still fighting a battle that they lost years ago,” he added.

In the court notice dated Jan. 13, Akin Gump, said: “Although the claims asserted by Outrider are unsupportable and should be dismissed for a variety of reasons, the Argentem Parties do not seek an injunction against Outrider.”

The law firm said: “the First Amended Complaint does not include any new substantive allegations by Kazakhstan against the Argentem Parties, and Kazakhstan asserts the same claims against the Argentem Parties as it did in the original Complaint.”

“The First Amended Complaint does not affect the basis for the Argentem Parties’ Motion for Leave to file the Motion for a Preliminary and Permanent Injunctive Relief against Kazakhstan.” Argentem Creek’s deadline to respond to the first amended complaint is Feb. 19. Outrider, along with several other Tristan noteholders, signed the agreement to share the proceeds of any award against Kazakhstan, according to the complaint.

According to the complaint by the Kazakhstan government and Outrider: “Unlike Defendants, Plaintiff Outrider was not aware of the Statis’ fraudulent scheme when it signed the Sharing Agreement.” The defendants are Argentem Creek. “Defendants conspired with and/or aided and abetted the Statis’ ongoing fraud for their own financial benefit. Defendants did so with a willful, wanton, and/or malicious disregard for the rights of Plaintiff Outrider,” the complaint stated.

A history compiled by Argentem Creek of the “Tristangate” dispute and an archive of court documents and news articles can be found HERE.

The Statis have been seeking documentation from the Kazakhstan government to support the discovery of assets worldwide. The government provided documents after several delays, which are currently being reviewed by the Statis, according to a status report in October 2020.

When the bonds were issued in 2006 and 2007, the following investors, among possibly others, purchased the Tristan notes: Argo Capital, Black River, BlueBay, CarVal, CVI GVF, Deutsche Bank, Goldman Sachs, Gramercy, Latin America Recovery Fund, Outrider, Standard Americas and Standard Bank plc, according to the complaint.

Dutch Supreme Court Ruling

On Dec. 18, the Dutch Supreme Court set aside the Amsterdam Court of Appeal’s decision related to an attachment of Kazakhstan’s stake in the international consortium developing the Kashagan oil field.

The Supreme Court ruled that the appellate court’s assessment of immunity was based on an incorrect standard. The Supreme Court has therefore set aside the lower court’s judgment and referred the case back to the Hague Court of Appeal for further consideration.

The attachment valued at $5.2 billion remains fully in place as security for the award of over $540 million, payable to the owners and bondholders of Tristan Oil. The stake in question represents shares in Dutch entity KMG Kashagan BV and is held by Kazakhstan via its sovereign wealth fund JSC Samruk-Kazyna.

Luxembourg Court Stays Proceedings

On Jan. 8, the Luxembourg District Court stayed proceedings on the validity of the attachments of various Kazakh state assets obtained by the Stati parties pending the outcome of the criminal proceedings initiated by Kazakhstan in Luxembourg, according to Tristangate.

The attachments in question are estimated to be worth $550 million and include Kazakhstan’s 40% shareholding in Eurasian Resources Group, or ERG, and frozen dividends owed by ERG to Kazakhstan among further receivables. In the meantime, the attachments continue to remain fully in place as a security measure under the award.

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