Citibank NY unilaterally suspended all issuance, write-offs, redemption payment distributions and interest payment distributions of Global Notes (GDN), papers that are part of the over- the- counter swap-type transaction in which The Police Social Security Institute (Isspol) participated and that the Ministry of Government presumes was an Isspol scam .
The US bank said it made the decision “to help prevent the dissipation of Isspol’s assets in light of its investigation.”
This was reported by the general director of this bank, Scott Pollak , on November 10, 2020 in a letter sent to the Ministry of Government.
Minister María Paula Romo asked Citibank NY for answers in the framework of the investigation carried out by the swap-type operation for USD 327 million in which the companies of Jorge Chérrez Ecuador High Yield Bond Fund (HYBF) and IBCorp.
Romo participated in a meeting with Citibank personnel in Washington last week to find out the answers to the questions surrounding the operation and how it was carried out.
What is a ‘swap’ and what are GDNs?
The ‘ swap ‘ was a 2016 operation, in which internal debt bonds owned by the Police entity were exchanged for instruments known as GDN, which were issued through Citibank NY .
The first step was to redeem the bonds. The transfer of these internal debt bonds to the Chérrez company was authorized in 2015 by the previous Isspol administration , with David Proaño as director, and was registered in the stock market through the Guayaquil Stock Exchange. Citadel brokerage participated as intermediary .
After that operation, the Global Notes or GDN appear.
These Global Notes are issued by depository banks abroad so that foreign investors have the right to collect domestic debt bonds without having to directly open accounts with the Central Bank .
Citibank NY , the custodian bank in this case, said in the letter that it only acted as an intermediary for the issuance and cancellation of the GDN, and denied an advisory or trustee relationship with the Isspol , IBCorp , Ecuador High Yield Bond Fund (“HYBF” ) or Jorge Chérrez Miño.
The letter explains that Citibank NY was in charge of the issuance, but Nats Cumco LLC (“Nats Cumco”) has custody of Ecuador’s domestic debt bonds deposited in connection with the GDN program. Citibank explained that Nats Cumco LLC maintains these bonds for the benefit of the GDN holder, in an account at the Central Bank of Ecuador .
The problem is that the GDNs are not in the name of Isspol , but of IBCorp , Chérrez’s company.
Since 2016, it received USD 80 million for this swap operation, of which USD 52 million were paid in paper (foreign debt bonds purchased at nominal price) and only USD 28 million in cash . In December, IBCorp should cancel USD 20 million corresponding to the payment established for 2020.
Under the agreement, IBCorp had to pay an annual amount of USD 20 million in interest until 2026. If Isspol had not exchanged the internal bonds with IBCorp , it would have received USD 175 million in interest and principal so far, according to Isspol .
The document sent by Citibank NY notes that for local bonds are transferred to the account of Nats Cumco in the Central Bank of the Ecuador for the issuance of the GDN to IBCorp , Citibank NY authorized IBCorp to provide instructions closure and liquidation the Citation of the securities house to facilitate the transfer.