Hedge Funds Kidnapping
Hedge Funds Accused in Prawn Kidnapping Plot
An interesting dispute has risen between investment vehicle Red Dragon and international hedge funds. Red Dragon has accused several hedge funds of planning to steal a seafood business. Several hedge funds led by BNP Paribas invested in exchangeable bonds issued by Red Dragon. The bonds were exchanged into shares in CP Prima, an Indonesian food company.During 2008 the Indonesian Rupiah's value fell causing CP Prima to nearly go bankrupt. The solution for sparing the company from default led to a long conflict between CP Prima which has accused the bondholders of trying to use technicalities to seize the company. The bondholders have rejected this theory and said they have no interest in running a prawn farm. As if the story could not get any more bizarre, the prawns have now fallen ill from a virus in their pond.
Here is a video about the Hedge Fund Prawn Scandal, if you are viewing this through our newsletter see this link.
To set the scene: A consortium of hedge funds, organised by BNP Paribas, invested in exchangeable bonds issued by a vehicle named Red Dragon. The shares were exchangeable into shares of CP Prima, an Indonesian food company, which is part of the food empire controlled by the Thai Chearavanont family. The bonds were secured with cash and shares to the value of 250% of the outstanding bonds.
The original size of the deal was $200 million, and after some sales, the amount now outstanding to the hedge funds is approximately $125 million. Interest coupons apparently continue to be paid.
Red Dragon says, with the decline in the rupiah that took place late in 2008, there were breaches of the requirement to keep that level of collateral margin. On five occasions, more CP Prima shares and cash were deposited to keep the margin in order.
As the rupiah fell, [CP Prima's] debt-to-equity gearing ratios ballooned. They were in potential default of their loan covenants, including their working capital facilities, the loss of which would bring their business crashing down.
To rectify this, a solution was devised whereby an existing subordinated loan from the other shareholders would be converted into common equity...
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Tags: Hedge Fund Kidnapping, Hedge fund scandal, Hedge Fund Prawn, Hedge Fund Seafood, Hedge Fund Sea, Hedge Fund food, Hedge Fund Indonesia, Hedge Fund Red Dragon dispute
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