The headquarters of Bank Audi in downtown Beirut. Photo posted on the bank's Facebook page on Oct. 27, 2019.
Lebanese banking group Bank Audi confirmed in a statement issued on Monday that the International Finance Corporation (IFC), the private sector arm of the World Bank, along with an affiliated fund, has filed a lawsuit against it in the High Court in London. The lawsuit seeks the repayment of two subordinated loans made in 2014.
The bank also responded to the legal action, accusing the IFC of seeking justice at the expense of Lebanese depositors, whose access to foreign currency has been restricted by Lebanese banking sector actors since the start of the country’s crisis in 2019 — a crisis for which the state, the central bank and the banking sector bear significant responsibility.
"Bank Audi shares the belief that the World Bank and the IFC have an important role to play in helping Lebanon overcome the severe crises it is currently facing. However, Bank Audi has no choice but to vigorously defend itself against the IFC's complaint, in the interest of all its stakeholders, including, and especially, its depositors," stated the banking group.
One Loan, Two Agreements
In its statement, Bank Audi refers to information reported by Law360, a subscription-based legal news service based in New York. Law360, which has been cited by several media outlets, mentioned a total of $234 million owed to the IFC and the IFC Capitalization Fund. The IFC Capitalization Fund aims to support development by providing financial facilities to the private sector in the countries where it operates. The plaintiffs are represented by Hogan Lovells International LLP, while Bank Audi is defended by Dechert LLP.
In March 2014, the IFC announced the signing of two subordinated loans totaling $150 million, with a repayment period of 10 years. Law360 reports that two agreements were signed on March 27, 2014: one for £37.5 million and another for $112.5 million. The news site adds that the IFC accuses the Lebanese banking group of "failing to pay and refusing to pay" the interest due "between April 2020 and March 2024." However, the bank has already paid $66 million in interest up to 2020, and the loan matured in April 2024. The IFC considers that the interest is due upon maturity of the loan, Law360 further specifies.
Bank Audi's statement does not provide any further reference to the actual amount claimed. The $234 million mentioned by Law360 could theoretically include interest and other amounts demanded by the IFC. Neither the bank nor the international organization, which we have both contacted, responded to our requests for comment.
Creditor Hierarchy
In its statement, Bank Audi raises several points regarding the IFC Capitalization Fund's actions, criticizing them while highlighting its "excellent business relationships with the IFC," which is also a shareholder in its Turkish subsidiary, Odea Bank. The bank also points out that it has "honored all its other financial commitments" to the World Bank group.
"To date, the IFC and its affiliated fund have received more than $66 million in interest payments on the subordinated loans. Bank Audi has only ceased paying interest on the subordinated loans in 2020 due to the absence of distributable profits, which is a necessary condition for interest payments. The IFC has also received substantial dividends from its investment in Bank Audi over the past years," the bank emphasized.
Furthermore, the bank specifies that "as indicated in their title, the loan agreements are subordinated and, according to Bank Audi, continue to be so after the maturity date in April 2024." It argues that its debt to the IFC is therefore not prioritized over bank deposits, which it has restricted access to due to insufficient foreign currency liquidity to meet its commitments. The bank also adds that the Banque du Liban has "decided to restrict the repayment of the IFC's subordinated loans pending the adoption of a law on bank restructuring." This legislation has been awaited since the beginning of the crisis, as has the law addressing the distribution of the country’s financial losses, which a significant portion of the country's banks and large depositors have opposed.