A Hedge Fund Steps Into Nigeria’s $9 Billion Corporate Dispute

(Bloomberg Businessweek) -- Nigeria potentially faces the largest financial liability in its history, and a hedge fund is coming to collect. The legal and political drama involves a deal between the country and a tiny natural gas company that was scuttled after the sudden death of Nigeria’s president in 2010. The company, Process & Industrial Developments (P&ID), sued and won a staggering judgment, now worth $9 billion. But it’s spent years trying to get the country to pay that award, equivalent to almost 2.5 percent of its annual gross domestic product.

Now a hedge fund managed by VR Capital Group has taken a large stake in P&ID. And the gas company is trying to pull levers of power in the U.S. and the U.K. to make Nigeria settle or, failing that, enable the company to start seizing assets.

Two years ago, P&ID won a decision against the government of Nigeria, which reneged on an agreement allowing the natural gas company to harvest hydrocarbons. Although lawyers for Nigeria say the company never put a shovel in the ground, a London arbitration tribunal in 2017 awarded it $6.6 billion—with more than $1 million in interest accruing daily.

To collect, P&ID, owned by the hedge fund and a firm called Lismore Capital Ltd., late last year hired lobbyists, lawyers, and a public-relations firm. The attorneys are also trying to confirm the award in courtrooms in Washington and London, which would allow P&ID to start seizing Nigerian assets in the U.S. and the U.K.

Representatives from VR Capital, which is managed by Richard Deitz, didn’t respond to multiple requests for comment. Dayo Apata, Nigeria’s solicitor general, said in a statement that the country “will ensure that its interests and that of the people of Nigeria are vigorously defended.” He wrote that the arbitration panel assumed too much confidence in the success of P&ID’s project in calculating the damages, leading to an excessive award.

In a statement, Brendan Cahill, one of P&ID’s founders, said “it is disappointing that Nigeria chose to repudiate the terms of a deal that would have benefited the country by bringing electricity to millions of its citizens.” He said the company, “backed by its investors,” would pursue enforcement of the award.

VR Capital’s bet appears to be the latest example of a tactic used by investors in distressed assets. Companies including Paulson & Co., Elliott Management, and Pershing Square Capital Management in the past several years have taken stakes in investments that few would touch, and then hired lawyers and lobbyists to change the political winds to make them succeed. The strategy worked for Elliott and its co-investors when they won a massive settlement on defaulted Argentine debt. The outcome is less certain for some Puerto Rico bondholders and shareholders in U.S. mortgage finance companies Fannie Mae and Freddie Mac.

The Nigerian saga began almost a decade ago and is revealed through court and arbitration filings and other public documents. Despite the country’s ample natural resources, Nigeria’s state-owned electric and petroleum companies have struggled to power the country. To help fix the problem, in 2010 then-President Umaru Musa Yar’Adua authorized partnerships with private companies to develop the nation’s energy infrastructure. The Ministry of Petroleum Resources struck one such agreement in January 2010 with P&ID, which was founded in 2006 by two Irishmen, Michael Quinn and Cahill.

Under the agreement, Nigeria planned to pipe natural gas from two offshore oil rigs to a refinery that would be built by P&ID. There, P&ID would remove hydrocarbons from the gas and send the fuel to Nigerian power plants. P&ID wouldn’t get paid for the endeavor, but it could keep and sell the hydrocarbon byproducts, which themselves had value, with the government getting a cut.

The company hoped it would make billions of dollars from the arrangement while helping to provide Nigeria with much-needed power. Quinn, in a statement before an arbitration panel, said he thought the deal would have been “the high point of my own career in Nigerian business.” He said P&ID spent tens of millions of dollars on preparatory work before winning the agreement.

But the project never got off the ground. In May 2010, Yar’Adua, who’d been suffering from pericarditis, died. The oil rigs couldn’t provide the volume of natural gas promised in the agreement, and, in any case, the government didn’t construct the pipeline. After about two years of trying to resolve its dispute with the government, P&ID filed for arbitration in London, where the agreement specified disputes would be handled. The arbiters sided with P&ID.

The Nigerian government appealed the decision in London, arguing that the petroleum ministry didn’t have the authority to enter into the agreement and the arbitration panel used the wrong legal standard. The government lost there, though it also turned to Nigeria’s court system, where it won.

Then the London arbiters came back with an award amount. P&ID never broke ground on the natural gas refinery, but said it spent about $40 million in the planning stages. It calculated its damages by estimating the profits it believed it would have earned over 20 years had the project gone forward: about $6 billion. Two of the three arbiters granted the enormous award. The third also said there should be damages, but set the level much lower.

At some point, the Cayman-based fund, VR Advisory Services Ltd., bought 25 percent of P&ID, according to public records. A P&ID spokeswoman declined to comment on when VR bought its stake or to identify the owner of Lismore Capital.

Last fall two firms registered with the U.S. Senate to lobby Congress and the Trump administration on behalf of the energy company. One of them, Kobre & Kim, which also represents P&ID in the District of Columbia courtroom, has a history of attempting to enforce judgments against foreign governments. The other, DCI Group, has made a specialty of public-relations work for Wall Street companies that attempt to use public pressure to make bets pay off. DCI in January said it had made $80,000 in fees in the fourth quarter from P&ID and lobbied the U.S. Department of State. Black Diamond Strategies LLC, which is stocked with conservative lobbyists, has also disclosed that DCI hired it for lobbying work on P&ID’s behalf.

The battle made headlines in Nigeria, where President Muhammadu Buhari was campaigning for a second term. (He won in February.) In November, when Nigerian officials visited the U.K. to pitch an offering of bonds, columnists there said Nigeria had to pay P&ID if it hoped to raise money from British investors. This prompted some in the Nigerian press to accuse commentators of being hired to attack Buhari. Cheta Nwanze, an analyst at Lagos-based risk advisory firm SBM Intelligence, says the government should have resolved the dispute and moved on. He says the president’s decision not to do so “has now caused a liability far exceeding any the country has ever incurred.” —With Elisha Bala-Gbogbo

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net

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