MIAMI -- Container-maker Owens Illinois has sold the rights to a $500 million World Bank judgment it won against Venezuela in 2015 to an Irish hedge fund for $115 million plus residual consideration and buyback safeguards.
"On July 31, 2017, OIEG [Owens Illinois European Group, a Dutch based subsidiary] sold its right, title and interest in amounts due under the Award to an Ireland-domiciled investment fund," the company said. "Under the terms of the sale, OIEG received a payment, in cash, at closing equal to $115 million. OIEG may also receive additional payments in the future calculated based on the total compensation that is received from Venezuela as a result of collection efforts or as settlement of the Award with Venezuela."
"In the event that the Award is partially or completely annulled by the ICSID [World Bank’s International Centre for Settlement of Investment Disputes] ad hoc annulment committee, OIEG may be required to repay to the purchaser up to the entire amount of the Cash Payment based on a formula tied to the amount of the Award (if any) that is annulled," the company said. "In addition, OIEG’s right to receive any Deferred Amounts is subject to the limitations described below."
"OIEG’s interest in any amounts received in the future from Venezuela in respect of the Award is limited to a percentage of such recovery after taking into account reimbursement of the Cash Payment to the purchaser and reimbursement of legal fees and expenses incurred by the Company and the purchaser."
"OIEG’s percentage of such recovery will also be reduced over time. Because the Award has yet to be satisfied, the annulment proceeding is pending, and the ability to successfully enforce the Award in countries that are party to the ICSID Convention is subject to significant challenges, the Company is unable to reasonably predict the amount of recoveries from the Award, if any,to which OIEG may be entitled in the future."
"Any future amounts that OIEG may receive from the Award are highly speculative and the timing of any such future payments, if any, is highly uncertain. As such, there can be no assurance that OIEG will receive any future payments under the Award beyond the Cash Payment. Except as noted above in connection with the annulment proceeding that is pending before the ICSID ad hoc committee, the Cash Payment is not subject to any forfeiture or future adjustment."
Owens Illinois Chief Financial Officer Jan Bertsch told analysts on a call last week that the company planned to use cash from the deal with the Irish fund to pay down debt.
Owens Illinois has refused to disclose who the Irish-based hedge fund is.
“In the unlikely event that the award is partially or completely annulled, OIEG may be required to repay up to the entire amount of the cash payment,” Bertsch said.
Ireland's recent financial reforms and tax-efficient laws have made it a hub for asset managers and hedge funds. Some €2.2 trillion of assets were contained in 6,602 funds in Ireland at the end of May, according to data from Irish Funds, the industry’s representative body.
Owens Illinois has another separate arbitration against Venezuela involving other expropriated subsidiaries pending before ICSID to obtain compensation primarily for third-party minority shareholders’ lost interests in the two expropriated plants.Venezuela Attempts to Annul Award
Venezuela is currently attempting to annul the award but on April 4, 2016, the annulment committee formed by ICSID ruled that OI European Group B.V. (OIEG) was free to pursue the enforcement of the arbitration award against Venezuela.
Owens Illinois reports that as of June 30, 2017, that Award amounts to more than $500 million, including reimbursement of expenses and accrued interest. Venezuela’s application to annul the Award is still pending before an ad hoc ICSID annulment committee and the next hearing is scheduled for September 26-27, 2017.
In the meantime, Owens Illinois has been trying to begin the enforcement procedure against Venezuela in U.S. Federal District Court in Washington, D.C. but Venezuela has been avoiding service by refusing to accept the initiating complaint for almost a year. In May, OI and the Clerk of the D.C. Federal Court had to call on the U.S. embassy in Caracas to personally serve the summons and legal documents on Venezuela's recalcitrant Foreign Ministry so that the enforcement procedure could begin.
"If Venezuela fails to meet its obligations, OIEG will seek to enforce the award against Venezuela`s assets around the world or find alternative measures of redress," said the company. "OIEG is unable at this stage to predict the amount, or timing of receipt, of compensation it will ultimately receive under the award." Venezuela Expropriated Owens Illinois Plants in 2010
In 2015, a 3 Member arbitration panel presided over by Spain's Juan Fernandez-Armesto, Chile's Francisco Orrego Vicuna (appointed by OI), and France's Alexis Mourre (appointed by Venezuela), found that Venezuela violated its obligations under the 1991 bilateral investment treaty between the Netherlands and Venezuela and awarded OIEG more than $372 million in compensation plus interest (calculated at a rate of 1 year US dollar LIBOR plus 4%). Under the award, interest compounds annually from the date of expropriation until the date of effective payment.
The expropriation occurred on October 26, 2010.
"As the tribunal found, Venezuela expropriated very valuable assets, which were the result of more than half a century of hard work and commitment by O-I employees and for which the country now has to compensate O-I," said Al Stroucken, O-I chairman and CEO. "We hope that the plants continue to benefit our former employees and the Venezuelan people."
A separate Owens Illinois arbitration is also still being argued at ICSID to obtain compensation for third-party minority shareholders` lost interests in the two expropriated plants.
After it was expropriated, Venezuela renamed the company Venezolana de Vidrio.
The two plants, located in the cities of Los Guayos and Valera in northwestern Venezuela, had been in operation for more than 50 years and employed more than 1,000 workers at the time of the expropriation.
After a rash of expropriations and nationalizations by Chavez, Venezuela currently has 23 cases pending against it at ICSID -- the most of any nation in the world. Faced with the cases, Chavez withdrew Venezuela from ICSID jurisdiction on Jan. 24, 2012, but pending cases and new cases brought under bilateral investment treaties and contracts continue to give ICSID jurisdiction to settle the arbitrations. Venezuela still must comply with rulings on cases that were brought prior to that date or afterwards under contract and treaty terms.
ICSID is an autonomous international institution established in 1965 under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID or the Washington Convention) with over one hundred and forty member States. The primary purpose of ICSID is to provide facilities for conciliation and arbitration of international investment disputes. ICSID judgements are automatically enforceable in any member state.
Started in 1907 and headquartered in Perryburg, Ohio, Owens-Illinois, Inc. is the world`s largest glass container manufacturer. The Company had revenues of $6.7 billion in 2016 and employs approximately 21,000 people at 80 plants in 23 countries.
ICSID - Owens-Illinois v Venezuela - Award - 10 March 2015 (Espanol) by Latin American Herald Tribune
OI v Venezuela - USDC SDNY - Ex Parte Petition to Recognize ICSID Award - March 2015 by Latin American Herald Tribune on Scribd
Owens Illinois European Group v Venezuela - USDC DC - 6th Status Report on Service - July 2017 by Latin American Herald Tribune on Scribd