PSALM disproves claim that it lost P100M in Lehman deal

State-run Power Sector Assets and Liabilities Management Corp. (PSALM) has disproved the claims of Eastern Samar Rep. Ben Evardone that the firm lost P100 million from its deal with an international investment company that went bankrupt in 2008. In a statement Thursday, PSALM said the deal it entered into with Lehman Brothers Special Financing Inc. on July 18, 2007 was not an investment but a hedging transaction. The deal was specifically a principal-only swap (POS) deal, PSALM said. Under the transaction, if a company borrows using a certain currency, it can eventually swap the loan for another currency. This could protect the company from exchange-rate movements. PSALM said it has the right to buy at P44.788 in 2028 regardless of the foreign exchange rate at that time. Counterparties for the POS deal, PSALM said, were selected based on a comprehensive selection process under the guidance of the Government Policy Procurement Board, the Finance Department, and the Bureau of Treasury. PSALM explained that when Lehman Brothers went bankrupt, the privatization firm invoked the International Swaps and Derivatives Association Inc. (ISDA) agreement, terminated the POS deal with Lehman Brothers, and entered into a new POS deal with UBS AG, also an international investment bank. New York-based ISDA is a trade organization for over-the-counter derivatives. PSALM said it filed for claims in a New York court for almost $3.4 million representing the cost of the replacement and other expenses (legal fees, damages, etc.) as may be allowed under provisions of the ISDA. Contrary to Evardone’s allegation, PSALM said that it failed to use the proceeds from the privatization of power assets in the deal. Until May 2008, it was the National Power Corp. (Napocor) that paid the required premiums, PSALM said. It clarified that the hedging transaction was used as an insurance against foreign exchange volatility. PSALM was created under the Electric Power Industry Reform Act of 2001 or EPIRA, which handles and manages the privatization of Napocor. —JE/VS, GMANews.TV