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Abidjan - The African Development Bank's legal aid arm is gathering resources to help African nations fight court battles against vulture funds seeking multi-million-dollar payouts, its director said.
Vulture funds - shadowy investors who buy defaulted sovereign debt at a deep discount and pursue payment at face value through the courts - have been thrown into the spotlight in recent years by high-profile rulings in their favour.
Mamoudou Deme, director of the AfDB's African Legal Support Facility, said in an interview late on Wednesday that he had been mobilising cash and requesting documents since March from states facing vulture fund litigation.
He said the long-term aim would be to win one or two major cases, thereby discouraging the practice by ramping up the investment risk attached to it.
"We are not against vulture funds; they are investment funds doing business," he said at the bank's annual assembly in Abidjan. "We just want to increase the risk, to send a message saying: 'now you will face a top law firm'."
"Poorly represented"
Some of Africa's most cash-strapped nations have had to settle big debts with vulture funds in the past few years.
"If you look at what happened in these cases, the African countries were poorly represented," Deme said.
Donegal International, registered in the British Virgin Islands, sought $55m from Zambia for a $15m loan by Romania in 1979 that Donegal got for $3.2m.
After a British court ruled in Donegal's favour in 2007, Zambia settled for $15.5m.
In November last year a British court ordered Liberia to pay $20m to two funds, Hamsah Investments of the British Virgin Islands and Wall Capital, Cayman Islands.
The claim was based on a $6.5m loan to Liberia by former US bank Chemical Bank in 1978. A New York court ruled in 2002 that Liberia owed $18m plus interest.
The sum was 5% of the 2009 budget of Liberia, which is trying to rebuild after a ruinous 14-year war.
"We have already approached countries involved in vulture fund cases. I cannot disclose the names - it is very sensitive," Deme said. "We will bring support to them."
He added that he had "identified key lawyers" in the "top law firms" to help fight the cases.
Donors are mulling tough regulations to rein in vulture funds. Britain's parliament passed a law last month limiting their ability to sue poor countries.
Deme said the programme so far had the backing of all major Western donors except the United States.
The main legal argument would revolve around that fact that the countries targeted were mostly engaged in restructuring their debt with the Paris and London clubs of creditors.
"We are just saying, there is debt relief - they have rescheduled the debts, but the vulture funds refused to sit at the table - they prefer to go to court," he said.
"We are showing them: going to the court is also risky. You'd better sit at the table."
- Reuters
