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Investor Alert

People's Republic of China Sovereign Bonds

Interest Payments Subject to Attachment

Recent judicial decisions enable defaulted creditors holding sovereign obligations to successfully assert pari passu doctrine to attach PRC payments to all creditors, including current and future investors in PRC sovereign bonds:

  • Elliott Associates, L.P., General Docket No. 2000/QR/92 (Court of Appeals of Brussels, 8th Chamber, Sept. 26, 2000)
  • Republic of Nicaragua v. LNC Investments and Euroclear Bank SA (Injunction issued against paying agent by Belgian Commercial Court, Sept. 8, 2003)
  • Red Mountain Finance, Inc. v. Democratic Republic of Congo and National Bank of Congo, Case No. CV00-0164R (C.D.Cal. May 29, 2001)
 
PLEASE CLICK BELOW FOR FURTHER IMPORTANT INFORMATION


US holders of pre-1949 China bonds sue rating agencies


Creditors file suit on China debt


 
NEW>>> [ Reserved ]
NEW>>> WorldNetDaily Exclusive The Chinese Government demands an American taxpayer-bailout of their U.S. debt securities, yet refuses to repay the Chinese Government's debt owed to America.

NEW>>> Risk Review Magazine Feature
Reassessing China’s Sovereign Risk: Beyond the economic and political vulnerability underlying China’s dependence on export manufacturing in the face of the global economic contraction, other serious cracks in the Chinese miracle are beginning to appear.
NEW>>> European Union Consultation RE: Wrongful Actions of the International Credit Rating Agencies: COMPLAINT alleging enforcement failure in reference to the commission of fraud by the three primary international credit rating agencies involving the deliberate misstatement of risk and the propagation of deceptive credit ratings arising from the following wrongful actions: a) Intentional misapplication of published metrics (e.g., willingness to pay); b) Intentional misapplication of published definitions of ratings classifications; c) Intentional violations of the U.S. Investment Advisers Act; d) Intentional violations of codified NRSRO standards; and e) Application of a reckless standard of care.
 NEW>>>




NEW>>>
Resolution of the United States Senate Targeting China's Artificial Credit Rating and Failure to Disclose its Defaulted Sovereign Debt


Resolution of the United States House of Representatives Targeting China's Artificial Credit Rating and Failure to Disclose its Defaulted Sovereign Debt


 

Expressing the sense of Congress that the People’s Republic of China and all enterprises owned or controlled by the People’s Republic of China should make proper disclosures with the Securities and Exchange Commission regarding the selective default status of certain bonds


Expressing the sense of the House of Representatives that the People’s Republic of China and all enterprises owned or controlled by the People’s Republic of China should make proper disclosures with the Securities and Exchange Commission regarding the selective default status of certain bonds.




NEW>>>







NEW>>>
 




 




Resolution of the United States Congress to Deny the Communist Chinese Government Access to the U.S. Capital Markets



 
The Great Global Credit Meltdown of 2007 - Brought to You Courtesy of the SEC: How Complacency, Failure to Regulate Credit Rating Firms Led to Subprime Credit Rout



Concurrent Resolution of the United States Congress condemning the wrongful actions of the government of the People's Republic of China and expressing the Sense of the Congress to bar future issuances of Chinese securities within the United States until such time as the communist Chinese government fully honors the repayment of China's defaulted full faith and credit sovereign debt.

 










Credit Rating Agencies Score Big Profits as SEC Looks the Other Way
























 

Debt Relief for Companies and Governments Indebted to China


Complaint Alleging Failiure to Disclose the Chinese Government's Defaulted Sovereign Debt by  State-Owned Enterprises of the People's Republic of China  Listed on the NYSE Euronext and NASDAQ Securities Exchanges



Complaint Filed with the U.S. Securities and Exchange Commission Describing Violations of the Federal Securities Laws



New Program Enables Companies to Extinguish Debt at 70 Percent Savings.


RE:
Inadequate Disclosure of Risks to American Investors of Unreliable Chinese Government Economic Data, of Predicted Political Instability in China , and of Prior Chinese Government Debt Repudiation




RE: Recent actions evidencing failure to comply with disclosure obligations of registered sovereign issuers under the federal securities laws of the United States in respect to the offer, sale and trading of sovereign debt securities of the People's Republic of China: violations of Rule 10b-5 and Section 10(b) of the Exchange Act.
Amendment Alleging Fraud  
Brief Amicus Curiae In the matter of Marvin L. Morris, Jr. v. The People's Republic of China.
Creditor Lawsuits  

Letter to Credit Rating Agencies re: Improper Sovereign Rating Classifications and Inadequate Disclosure of Risks

 

RE: Notification of Pending and Anticipated Litigation by United States Creditors Against the People's Republic of China for Recovery on Defaulted Sovereign Debt of the Chinese Government (Marvin L. Morris, Jr. v. People's Republic of China).
Testimony presented at a meeting of global finance ministers and central bankers hosted by the World Bank and the International Monetary Fund RE: Statement Relating to the Claims of U.S. Creditors Holding Defaulted Sovereign Debt of the Government of China.
Congressional Endorsement of International Offset RE: Complaint Filed On Behalf of Default Creditors of the Government of China Alleging Misleading Sovereign Credit Ratings and Inadequate Disclosure Pertaining to the Offer, Sale and Trading of Debt Securities of the People’s Republic of China Including Violations of International Law.
Complaint to Committee of European Securities Regulators RE: On Behalf of Defaulted Creditors of the Government of China: COMPLAINT Misleading Sovereign Credit Ratings and Inadequate Disclosure Pertaining to the Offer, Sale and Trading of Debt Securities of the People’s Republic of China: Deceptive Practices and Violations of International Law.
Complaint to US Securities and Exchange Commission RE: On Behalf of Defaulted Creditors of the Government of China: COMPLAINT Misleading Sovereign Credit Ratings and Inadequate Disclosure Pertaining to the Offer, Sale and Trading of Debt Securities of the People’s Republic of China: Deceptive Practices and Violations of International Law.
Complaint to International Organization of Securities Commissions

RE: On Behalf of Defaulted Creditors of the Government of China: COMPLAINT Misleading Sovereign Credit Ratings and Inadequate Disclosure Pertaining to the Offer, Sale and Trading of Debt Securities of the People’s Republic of China: Deceptive Practices and Violations of International Law.

 

  Letter to Attorney General of the State of New York

RE: Initial Complaint filed in the United States on behalf of the American Bondholders Foundation.

 

RE: Legal Confirmation of China's Financial Obligations to U.S. Bondholders

RE: Default by China of Full Faith and Credit Bonds: 40% of Proceeds to Benefit U. S. Government and Many American Communities
RE: 5% Reorganization Gold Loan of 1913 Bearer Bonds DEMAND FOR FAIR SETTLEMENT OF CLAIMS
Action by the United States Congress

RE: Complaint Filed On Behalf of Default Creditors of the Government of China Alleging Misleading Sovereign Credit Ratings and Inadequate Disclosure Pertaining to the Offer, Sale and Trading of Debt Securities of the People’s Republic of China Including Violations of International Law.

 

Filing with the U.S. Government Accountability Office RE: 1. Request by the United States Congress for Investigation into Complaint Filed with Division of Market Regulation of the U.S. Securities and Exchange Commission.

2. Enforcement of SEC Regulatory Mandate Pertaining to Nationally Recognized Statistical Rating Organizations.

Letter to SEC Chairman Christopher Cox

RE: Complaint filed with the Division of Market Regulation on behalf of defaulted creditors of the Government of China.

Press Release Archive Chinese Government Bond Default Prompts Complaint Against International Credit Rating Agencies
 
People's Republic of China
Sovereign Bond Rating Research Bulletin

JUSTIFICATION FOR REVIEW OF SOVEREIGN CREDIT RATING OF THE PEOPLE’S REPUBLIC OF CHINA

ATTACHMENTS:

 1. Legal Opinion Issued by Stites & Harbison PLLC Affirming Validity of U.S. Citizens’ Claims Against the People’s Republic of China Relating to Defaulted Sovereign Obligations of the Chinese Government.

 2. Transcripts of Testimony Before the International Relations Committee of the United States Congress House of Representatives.

January 20, 2004.

In light of certain past defaults by the Chinese Government on sovereign debt issues and the continuing refusal of the present government of China to honor payment of defaulted external bond issues as required under international law, it is appropriate at this time to conduct a review of the sovereign rating assigned to long-term debt issued by the national government of the People's Republic of China.

Although there exist numerous defaulted Chinese Government bond issues, the obligations whichare specifically the subject of this research bulletin are those obligations issued on a global syndication basis as the "Chinese Government Five Per Cent Reorganization Gold Loan of 1913". These bearer obligations were issued denominated in British pounds sterling, in both £20 and £100 increments and were due to mature in 1960.

The Chinese Government Reorganization Gold Loan Bonds (the “Bonds") were issued as full faith and credit obligations of the Chinese Government. A substantial number of the Bonds are held by United States citizen bondholders which constitute a valid claim under existing international law (please refer to attached legal opinion issued by Stites & Harbison, PLLC).

The Bonds are presently in default. The successor government, the People's Republic of China (the “PRC"), has refused and continues to refuse to pay the claims of U.S. citizen bondholders of these obligations. The holders of the Bonds who are U.S. citizens are in the process of asserting a claim against the PRC for payment in full of the defaulted Chinese Government obligations.

The individual bondholders' claims have been consolidated under the auspices of the American Bondholders Foundation, which is pursuing payment of the defaulted securities in conjunction with the Foreign Bondholders Protective Council. The cumulative value of the defaulted Gold Loan Bonds claim being asserted against the PRC by U.S. citizens is approximately $125 billion. The American Bondholders Foundation also represents U.S. citizens who are holders of various other defaulted, U.S. dollar-denominated Chinese Government bond issues in asserting claims for payment.

ACTION

In view of the foregoing factors and for the reasons discussed below and in the attached legal memorandum, Sovereign Advisers at this time issues a Downgrade Alert for Long-Term Debt of the People's Republic of China to sub-investment grade status.

1. Refusal by the PRC to Pay Defaulted Sovereign Obligations in Contravention of International Law:

The unwillingness of the Government of the People's Republic of China to honor a legally valid claim asserted by U.S. citizens as holders of the Chinese Government Reorganization Gold Loan Bonds. The Bonds are full faith and credit obligations which under international law are legally binding upon the PRC as the successor government to the National Government of China. The position of the PRC with respect to refusal to pay holders of full faith and credit sovereign obligations is in flagrant violation of international law (see Restatement (Third) of the Foreign Relations Law of the United States, Section 712(2) and Creditors Claims in International Law, The International Lawyer, Volume 34, page 235, Spring 2000).

2. Emergence of a Significant Contingent Liability:

Emergence of a significant contingent liability in the form of potential financial impact of bondholder claims on the PRC's external payments position in the event of an eventual settlement of bondholder claims, which would likely exert a material adverse effect on the PRC's external payments position, as well as negatively affecting foreign direct investment and foreign exchange rates.

3. Impaired Ability by the PRC to Implement Monetary Policy Reforms:

The possibility that the PRC’s efforts to continue to reform the country’s financial system, in part by reducing the generation of new non-performing loans (“NPLs”), may be impaired due to increased difficulties faced by the four asset management companies charged with recovery or disposal of NPLs to repay loan purchases through the issuance of sovereign-supported debt. The pricing and marketability of new debt issues may be adversely affected due to exigencies created by virtue of pre-existing defaulted claims presently in collection. Foreign participation in Chinese financial markets may be discouraged as well, as a direct result of the PRC’s posture with respect to refusal of payment of government obligations.

In addition to the foregoing, since full faith and credit obligations of a sovereign issuer are generally held post-Brady Plan restructuring to be de facto senior to bank debt, it is appropriate at this time to assign a downgrade to trade credit of the PRC, as well as to outstanding and future debt obligations of state-owned enterprises (“SOEs”) of the PRC.1 The relevant historical fact pattern demonstrates that when the isolationist Chinese communist government (i.e., the PRC) acceded to political power over the Chinese mainland and subsequently repudiated existing external sovereign debt obligations, and then determined to re-access the international capital markets while ignoring payment claims arising from valid pre-existing obligations of the Chinese Government, the probability of future continuity of payments on present and future-issued obligations may reasonably be interpolated from the historical fact pattern as embodying a significant degree of repayment uncertainty which is not reflected in the current PRC debt rating. 1 Post-1990 Brady Plan debt restructuring as described in "Appendix A" of the Salomon Smith Barney Sovereign Credit Risk Analyst's Guide.

The historical and continuing refusal by the PRC to pay legally valid obligations of the Chinese Government, in violation of international law, represents a form of institutionalized behavior pattern of the PRC, suggesting the probability that such debt defaults presaged upon the unwillingness to pay external obligations may reasonably be expected to recur in the future.

In light of the persistent intransigence of the PRC with respect to payment of defaulted external obligations and the continued unwillingness of the Chinese Government to pay legally valid claims arising from defaulted sovereign obligations, as well as the potential financial impact arising from a contingent liability, the following existing PRC ratings are no longer appropriate:

Credit Rating Agency PRC Long-Term Foreign Currency Credit Rating

Standard & Poor’s BBB/Positive/A-3

Moody’s Investors Service A2/Stable

Fitch, Inc. A-/Positive

The posture of the Government of the People’s Republic of China with respect to its continued refusal to pay U.S. citizens’ claims arising from defaulted Chinese government debt obligations as required under conventions of international law as described herein and affirmed in the attached legal opinion is neither consistent with, nor indicative of, an investment-grade sovereign.

In light of such posture, Sovereign Advisers issues a credit watch for sovereign debt obligations of the PRC and assigns a downgrade of the PRC debt rating to sub-investment grade status.  A re-determination and downgrade of the prevailing sovereign credit rating of the People’s Republic of China is further warranted by the emerging significance of this issue within the United States Government, as evidenced by the testimony presented on October 21, 2003 to the International Relations Committee of the United States Congress House of Representatives during hearings conducted on PRC abuses of the international financial system.

Transcripts of Congressional testimony may be accessed at:

http://www.foreignaffairs.house.gov/archives/108/90360.pdf

 

Jonna Bianco, President

American Bondholders Foundation

2840 Glasscock Road

Lewisburg, Tennessee 37091

Telephone: (931) 359-8781

Facsimile: (931) 359-9689

John J. McDonald, Esq.

Kelley Drye & Warren LLP

8000 Towers Crescent Drive, Suite 1200

Vienna, Virginia 22182

Telephone: (703) 918-2300

Facsimile: (703) 918-2450

John Petty, President

Foreign Bondholders Protective Council

1953 Gallows Road, Suite 220

Vienna, Virginia 22182

Telephone: (703) 744-8400

Facsimile: (703) 506-1484

 
News Alert

On Monday June 7, 2004, the United States Supreme Court handed down a decision in Austria v. Altmann that the 1976 U.S. Foreign Sovereign Immunities Act may be retroactively applied to fraudulent and deceptive commercial transactions perpetrated by foreign sovereign nations against United States citizens.  The Court found that it was the intent of the United States Congress to apply the provisions of the Act to any such pre-enactment actions of foreign governments.

As a result of the Supreme Court decision, the People’s Republic of China is now subject to civil suits in U.S. Courts by United States citizens holding defaulted full faith and credit sovereign obligations of the Chinese Government.

The exposure to litigation and the probability of adverse judgments act to create a substantially adverse risk profile for newly-issued as well as outstanding obligations of the People’s Republic of China.  Holders of defaulted full faith and credit sovereign bonds of the People’s Republic of China may now obtain a judicial order attaching interest payments on recently-issued and outstanding PRC sovereign obligations.

 
People's Republic of China
Sovereign Downgrade Alert

A comprehensive risk assessment of investment in obligations of the People’s Republic of China (the “PRC”) was privately commissioned for a client of Sovereign Advisers.  An abstract of this assessment appears on this website with the express permission of Sovereign Advisers.  Please note that the complete assessment is not available to the general public.

Summary of Risk Factors

The sovereign downgrade research bulletin describes a set of revised risk metrics associated with investment in both outstanding as well as newly-issued PRC government bonds:

Judicial risk (i.e., risk of interest attachment / coupon seizure by defaulted creditors);

  • Elliott Associates, L.P., General Docket No. 2000/QR/92

    (Court of Appeals of Brussels, 8th Chamber, Sept. 26, 2000)

  • Republic of Nicaragua v. LNC Investments and Euroclear Bank SA

    (Injunction issued against paying agent by Belgian Commercial Court, Sept. 8, 2003)

  • Red Mountain Finance, Inc. v. Democratic Republic of Congo and National Bank of Congo, Case No. CV00-0164R

    (C.D.Cal. May 29, 2001)

  • Republic of Austria v. Maria V. Altmann, Docket No. 03-13

    (United States Supreme Court, June 7, 2004)

    U.S. Supreme Court decision enabling the 1976 U.S. Foreign Sovereign Immunities Act to be retroactively applied to fraudulent and deceptive commercial transactions perpetrated by foreign sovereign nations against United States citizens.  The Court found that it was the intent of the United States Congress to apply the provisions of the Act to any such pre-enactment actions of foreign governments.  As a result, the People’s Republic of China is now subject to civil suits in U.S. Courts by United States citizens holding defaulted full faith and credit sovereign obligations of the Chinese Government.  Holders of defaulted full faith and credit sovereign bonds of the People’s Republic of China may now obtain a judicial order attaching interest payments on recently-issued and outstanding PRC sovereign obligations.

Legislative risk (i.e., risk of U.S. capital markets or trade sanctions);

http://www.globalsecuritieswatch.org/joint_economic_committee_press_release.pdf

http://www.uscc.gov/pressreleases/2004/04_06_15annualreport.pdf

http://wwwc.house.gov/International_Relations/108/bian2021.htm

Liquidity risk (i.e., risk of regulatory agency sanctions imposed on dealers and ban on quotation pursuant to the U.S. Johnson Debt Default Act);

http://www.globalsecuritieswatch.org/US_Johnson_Debt_Default_Act

Repayment risk accruing from the "willingness to pay" metric (i.e., reassessment of the PRC's willingness to honor outstanding obligations in the event of future adverse economic conditions); and

http://www.riskcenter.com/story.php?id=9418

International setoff risk (i.e., vulnerability to international setoff, adversely affecting the PRC's balance of payments position and impairing the PRC's ability to maintain its current level of external debt).

http://www.globalsecuritieswatch.org/congressional_endorsement_of_international_setoff.html

http://www.globalsecuritieswatch.org/international_setoff_transaction_templates.html

NATIONAL BANK v. REPUBLIC OF CHINA, 348 U.S. 356

Statement by the United States Supreme Court
affirming right of international setoff:

We have a foreign government invoking our law but resisting a claim against it which fairly would curtail its recovery. It wants our law, like any other litigant, but it wants our law free from the claims of justice.
...unjustly enforced by disregarding legitimate claims against the Republic of China.
...the individual can set off all debts properly due him from the sovereign.
The judgment of the Court of Appeals must be reversed and the case remanded to the District Court with directions to reinstate the counterclaims and for further proceedings not inconsistent with this opinion.

PRAVIN BANKER ASSOCIATES v. BANCO POPULAR DEL PERU
aff'd 109 F.3d 850 (2d Cir. 1997), aff'g 895 F. Supp. 660 (S.D.N.Y. 1995)

Decision by the Court of Appeals for the Second Circuit affirming claimant's right to recieve full contractual value of defaulted sovereign debt

Peru's arguments to the United States Court for the Southern District of New York centered on the claim that Pravin had purchased the debt in the secondary market at a substantial discount and face value recovery was therefore not contemplated and would constitute unjust enrichment by enabling Pravin to reap a windfall profit from Peru's economic misfortune. The U.S. Court disregarded these arguments and asserted the following: (a) Pravin was within its full legal rights to seek a full-servicing of the debt it had acquired regardless of the price it had paid in the secondary market; (b) the U.S. has a strong interest in ensuring the enforceability of valid debts under contract law; and (c) that Pravin sought merely to enforce the terms of the debt agreement as written. The Court of Appeals for the Second Circuit concurred with the Court's findings and affirmed the decision of the S.D.N.Y.

Note: The Global Association of Risk Professionals recently reported on the downgrade of the long-term credit of the People’s Republic of China to sub-investment grade status.  The justification for the downgrade of the PRC’s credit rating is predicated upon the continuing evasion of payment on a series of defaulted full faith and credit sovereign bonds of the Chinese Government.  Discriminatory settlements of the defaulted sovereign series increases the risk of interest payments seizure by defaulted creditors.  The article may be viewed online at:

http://www.globalsecuritieswatch.org/Global_Association_of_Risk_Professionals/Top_Stories.pdf


China Economic Assessment and Outlook

 
Notice to All PRC Bondholders
If you are presently a holder in due course or have suffered a loss in the disposition of your investment in the following class of obligations:

Full faith and credit sovereign debt obligations of the People’s Republic of China

Issued during any of the years appearing below


You may have recourse to recover any losses which you have incurred or may incur with respect to such investments.  If you are a purchaser or offeree of these securities and the risk factors described on this website including those metrics described in detail in the letter addressed to the Honorable Eliot Spitzer, Attorney General for the State of New York, were not disclosed to you prior to your having purchased the subject securities, please inform the United States law firms shown below by clicking on the following links:


Description of Series of Obligations


People’s Republic of China Full Faith and Credit Sovereign Bonds

Year of Issue

1993 - 2004


Please Contact the Following Plaintiffs Law Firms


Milberg LLP

  http://www.milberg.com/contact/reportafraud.aspx

 

Coughlin Stoia Geller Rudman & Robbins LLP

http://www.csgrr.com/csgrr-cgi-bin/mil?templ=contact/report-fraud.html

GlobalSecuritiesWatch.org is an anti-fraud sponsored project by securities industry professionals dedicated to promoting transparency of the world's financial markets. This site is supported by visitor donations. Click the link to contribute >>>

THIS RESEARCH BULLETIN HAS BEEN PREPARED BY:
 

Sovereign Advisers

4901 E. Sunrise Drive Suite 711

Tucson, Arizona 85718

Telephone: (520) 327-2482

E-mail: info@sov-advisers.com

Website: www.sov-advisers.com
 
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