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Standard Chartered is taking legal action against several of its own investors, including a hedge fund run by DE Shaw, in what legal experts see as a test case for the transition away from the scandal-plagued Libor rate.
The legal battle, which will take place in London’s High Court this week, could set a precedent for investor payouts to other companies.
The dispute centers on whether StanChart can make a change to the interest it pays on its preference shares, sidestepping investor concerns, according to legal documents seen by the Financial Times.
Lawyers claim this is the first time a company’s approach to refraining from using Libor has been challenged in court and the outcome could have far-reaching consequences.
Libor – or the London interbank rate – was scrapped in June 2023 after years of scandal, including revelations more than a decade ago that traders at a range of global banks systematically manipulated rates.
A synthetic version of Libor has been developed to allow companies to switch, but it will be phased out this month.
StanChart issued $750 million worth of preferred stock in 2006 with an interest rate later tied to Libor. But the prospectuses did not explain what would happen if Libor were scrapped.
The bank has tried to switch from Libor to an alternative rate known as Sofr, or the secured overnight rate, but has faced resistance from its investors.
Their lawyers will argue that Sofr, which is insensitive to risk, behaves very differently from Libor in times of economic and financial crises, and is therefore an inappropriate substitute, according to documents seen by the FT.
StanChart asked for permission from its investors in January last year to change the interest rate, but this was refused.
The bank then began legal action in June to implement the change. Several investors, including DE Shaw’s Galvanic Portfolios fund and three funds from Boston-based hedge fund manager Bracebridge Capital, requested to be added to the lawsuit as defendants.
The case will be heard at London’s commercial court for five days from Friday, with a ruling expected at the end of October.
Lawyers for the investors are expected to call on StanChart to buy back the shares and reissue new shares at the updated interest rate.
StanChart and DE Shaw declined to comment. Bracebridge did not respond to a request for comment.