YOU MAY ANSWER ONLY ONE QUESTION FROM PART A
1.Transcaspiana is a mineral rich country in west Asia. Substantial
“rare earth” mineral deposits were discovered there a few years ago
for which there is large market demand in China. To exploit these
mineral deposits, the state owned Transcaspian Mineral Corp (TMC),
requires financing and is proposing to issue one billion of € bonds.
The bonds are to be sold to sophisticated investors in the EU and the
US as well as to institutional investors in China, Japan and Latin
America. The bonds are to be listed on the London Stock Exchange
due to its continuing status as the premier financial centre despite
Brexit. Due to perceived complexity and potential legal exposure,
TMC’s Board has also ruled out listing the bonds in New York or filing
a Registration statement with the SEC.
If the issue is successful it wishes to issue three further tranches of €
bonds on a similar basis within twelve months.
The bonds are to be issued in dematerialised form under English law
without a trust deed under market standard documentation for
TMC requires your advice first on the question whether despite
Brexit it will need to have a prospectus drafted complying with the
EU Prospectus Regulation if it wishes to have the bonds listed in
London but the bonds are only to be sold to sophisticated investors
in the EU.
Secondly, whether it will need to file a registration statement with
the SEC in order to sell the € bonds to sophisticated investors in the
US and elsewhere or whether it could sell the securities under an
applicable exception in US securities law and if so, what would it
need to do to fall within such an exemption. In this context MO’s
financial advisers have stated that it was necessary for purposes of a
liquid market in the US that US investors should be able to resell the
securities without being subject to time limits on resale.
Thirdly, whether it would be required to provide information to
such investors in the US about itself and the securities and what
should be done to limit any potential liability for misstatements or
The Government of Transcaspiana also wishes to ensure that since
this is the first € denominated issue by its largest state corporation it
is perceived as an unqualified success by the markets and to that
extent, TMC requires your advice on whether if global bond markets
become volatile due to rising hostilities between the US and China,
thus making it very difficult to successfully sell the bonds, TMC
could terminate the bond issue after the launch announcement
without incurring any legal liability. TMC also wishes your advice on
the conditions which it must fulfil in order for the underwriters of
the bond issue to be liable to subscribe the bonds on closing date.
In that context, TMC requires your advice on whether it or the
Transcaspianian Government could redenominate the bonds into
the local currency, the Bouzo, if after issue there is a serious
economic downturn in Transcaspiana due to the market in China
for rare earth minerals falling significantly.
TMC is also proposing to sell the bonds not only in Europe but also in
Asian markets but is keen not restrict any liability to investors for any
potential omissions or misstatements in its prospectus. TMC requires
your advice on whether if the prospectus is confined in its
circulation to countries within the EU (even though sales are to be
made outside the EU in Asia) this would restrict legal liability to EU
investors under EU/UK law for any such omissions or misleading
2. China Global Investment Corp (CGIC) is a major investor in
international bonds. It had purchased US $100 million convertible
bonds issued some three years ago by Ayuthya & Sukothai Co (ASC),
a multinational conglomerate incorporated in Taipanbodia and a
second investment of € 150 million of fixed rate bonds issued by ASC.
CGIC had purchased both sets of bonds through a dealer in Hong
Kong which had in turn purchased these bonds from a dealer in
The convertibles had been issued subject to a trust deed while the €
bonds were subject to a Fiscal Agency Agreement both sets of
documentation were subject to English governing law and were in
market standard form and both sets of bonds were listed in London.
Some months after the purchase by CGIC, the regulatory authorities
in London announced that they were proceeding with an
investigation into the ASC bond issues under UK financial services
legislation because the estimates contained in the Listing Particulars
submitted to the London Stock Exchange with regard to copper
deposits on lands which ASC had leased In Zimbabwe and Botswana
were now known to be completely inaccurate. Both sets of bonds
were immediately downgraded to BB from AA by Cretin &
Miscalculus (CM), the international rating agency. In consequence,
the market price of both sets of bonds fell to 60% to 65% of their
face value in daily trading in global bond markets. CGIC had
purchased the US $ bonds at 110% of face value while it had
purchased the € bonds at 95% of face value.
CGIC requires your advice on its legal position under the terms of
the € bonds and the US $ convertible bond instrument with regard
to the above developments assuming documentation which is
subject to market standard clauses and conditions for such bond
issues and in particular, whether CGIC may call default on the two
sets of ASC bonds; secondly, what claims it may have due for any
financial loss suffered due to the misstatements in the
ASC has also been in negotiations with a South Korean multinational
Boolgogi and Soba (BS) with a view to setting up a global
conglomerate to be named Kabuki & Kaiseki Co (KKC) by the merger
of ASC and BS. It is proposed that subsequent to the merger all
assets and liabilities of ASC and BS would be transferred to KKC and
both ASC and BS will be liquidated. Advise CGIC on its position under
the US $ convertible bonds in view of the proposed merger.
In addition, CGIC has become aware that in preparation for the
launch of the $ convertibles ASC may have engaged dealers in Hong
Kong and Tokyo to purchase shares in ASC with a view to increasing
the price ASC shares prior to the launch of the convertible. The ASC
share price had risen significantly in the week prior to the launch of
the convertible. CGIC requires your advice on whether ASC might
have been in breach of US or EU or UK regulatory law due to these
purchases of ASC shares as a prelude to the sale of the $
Advise CGIC on its legal position with regard to the above matters.
YOU MAY ANSWER ONLY ONE QUESTION FROM PART B
3. Novosibera Mining and Exploration (NME), is a global corporation
set up in Novosibera, which has mandated Banque St Tropez et Cap
Ferrat (BSTCF) a French bank with global operations, to raise a
multicurrency syndicated loan of US $6 billion under a market
standard form of a syndicated loan agreement (SLA) subject to
English law (in a form similar to but not the same as the LMA model
BSTCF has distributed an Information Memorandum (IM) to potential
members of the syndicate. The IM included amongst other
information concerning NME and the market for mining and
exploration, revenue projections for NME based on the assumption
that NME would be successful in obtaining mining concessions in a
number of African countries. Financial analysts have now concluded
that these were totally inaccurate. The banks in the syndicate
formed by BSTCF include, Yacht Jet and Bonus(YJB)(US), Bank
Yorkshire & Rosbif (BYR)(UK), Bank Teriyaki and
Tempura(BTT)(Japan), Banco Sangria et Tapas (BST) (Spain), Bank
Schnapps und Bierhal (BSB)(Germany), Bank Mandarin
The IM contained a number of common disclaimers usually included
in IMs used in the global markets.
Advise BSTCF on what legal exposure it may have in respect of the
inaccuracies in the IM.
The US and a number of EU countries including Germany, Italy,
France and Spain as well as the UK have imposed sanctions on
Novosibera and corporate entities set up there, due to Novosibera’s
alleged involvement in supporting regimes accused recently of war
crimes in some countries in the Levant. The sanctions prohibit banks
incorporated in each of the above countries from doing any banking
business with Novosibera or entities incorporated there, from any of
their banking offices anywhere on the globe though the details of the
sanctions vary from country to country. The US sanctions are in
similar form but also apply not only to all US incorporated banks but
to all foreign banks with a US office.
NME has given notice to BSTCF under the terms of the SLA that it
wishes to drawdown €100 million, US$ 100 million and ¥5 billion on
the next LIBOR interest rate fixing date which is in ten days. BSTCF
(France), BST (Spain), BSB (Germany) BYR (UK) have informed EM
that they are unable to provide funding due to the EU sanctions and
will be relying on an “illegal to lend” provision in the SLA. US
incorporated banks (YJB)and other banks in the syndicate with US
offices (BYR, BST and BM) have also cited the US sanctions as the
reason for their refusal to comply with the upcoming drawdown
request and will also be relying on the same “illegal to lend” clause in
All payments and transfers of funds under the SLA are to be made to
the office of BSTCF as follows: US$ in London; € in Paris, Frankfurt or
Milan, and ¥ in Tokyo.
BM has today informed BFGS that EM is in breach of a loan
agreement with a syndicate of banks in Singapore.
In the meantime, the government of Novosibera has warned
countries imposing sanctions that unless they are lifted immediately,
Novosibera would impose a moratorium in three weeks’ time on all
foreign currency payments due from Novosiberan companies to
Banks incorporated in countries imposing sanctions until such time
as sanctions are lifted. Interest payments are due to the syndicate
banks in all three currencies under the SLA in four weeks’ time
Advise BSTCF and the other members of the syndicate mentioned
above on their legal position especially with regard to the
drawdown and their rights under the SLA if a moratorium is in fact
imposed by the Government of Novosibera.
4. Caspiana Gas (CG) and MareNoir Energy Co (MEC) are major oil
and gas companies incorporated in Turkussia, a country outside the
EU located in western Asia. Both CG and MEC are borrowers under
two multi-currency SLAs in market standard form under English law
(though not the LMA model form) totalling over US$5 billion. The
lead manager in respect of these two syndicated loans to MEC and
CG is Banco Siciliani et Toscani (BST), an Italian bank.
The US, UK and EU countries have now imposed sanctions on
Turkussia, for its alleged involvement in armed conflicts in the
Syria/Iraq region. These sanctions required all EU, UK and US
incorporated banks to cease granting banking and loan facilities to
Turkussia or Turkussian corporates until Turkussia has complied with
the demands of the EU, UK and US to disengage its military in that
region. However, receipt by EU and US banks of interest and
principal due from Turkussian entities on existing loans were made
exempt from the sanctions.
Due to these sanctions Turkussia is experiencing a serious financial
and economic downturn and is embarking on a series of measures to
steady the economy. Two of its major corporations, CG and MEC are
to be merged by state decree. Large but uneconomic oil and gas
fields owned and operated by CG and MEC in the Black sea region
and the Caspian are to be sold.
In addition, CG and MEC are now unable to raise finance from EU
and US banks under new SLAs due to the sanctions. Consequently,
they propose to borrow from a syndicate of Japanese, Russian and
Chinese banks but have been told by prospective lead managers that
all loans will need to be subject to security interests over the gas
fields and pipelines that these loans are expected to finance or,
alternatively, that financing would be provided under sale and
leaseback agreements. The pipelines are expected to run across
three sovereign states between the Black Sea and Turkussia.
In the meantime, BST has been notified by a syndicate member that
both MEC and CG are in breach of their obligations in currency swap
transactions with two banks in Hong Kong by failing to deliver
Turkussian $s against US$s.
Advise BST as to the legal position in the context of these
CG and MEC have also offered to do more of its business in foreign
exchange transactions and derivatives worth several hundred million
dollars in profits with BST, if BST were able to put pressure on other
banks in the syndicates in which BST is agent to waive any potential
breaches by MEC and CG under the two SLAs in consequence of the
proposed merger, the proposed financing subject to security
interests or leaseback arrangements and the alleged breaches of the
currency swap transactions until sanctions are lifted.
CG and MEC have also indicated that they would be willing to pay
interest and principal to those banks in the syndicate which were
willing to vote with BST to waive any alleged breaches in the event
CG and MEC decide to withhold interest and principal payments to
the syndicates in response to the banks’ refusal to lend under the
two SLAs due to sanctions.
In two weeks, CG and MEC are due to receive two large advances
under their respective syndicated loans in US$ and Euro in the
syndicated loan led by BST and a second set of advances in US$ and ¥
also in a syndication led by BST. Each syndicate has both EU, UK and
US banks as members and they have all indicated that they will not
be advancing funds when due under these SLAs due to the sanctions
and will also be relying on “illegal to lend” provisions in the
The US$ advances are to be made in London, the Euro advances Paris
while the ¥ advances are to be made from Tokyo.
Advise BST as to the legal position under the abovementioned SLAs
in the light of the above facts and proposals.
END OF EXAM PAPER