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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 is seen by legal experts as a test case over the transition from the scandal-ridden Libor interest rate.
The legal battle, which is due to be heard in London’s High Court of Justice this week, could set a precedent for other companies’ investor payouts.
The dispute is over whether Standard Chartered can force through a change in the interest rate it pays out on its preferred shares, bypassing investor concerns, according to legal documents seen by the Financial Times.
Lawyers have claimed it is the first time the way a company moves away from using Libor has been challenged in the courts and the outcome could have far-reaching consequences.
Libor — or the London Interbank Offered Rate — was scrapped in June 2023 following years of scandal, including revelations more than a decade ago that traders from a range of global banks were systematically rigging the rate.
A synthetic version of Libor was developed to allow companies to transition, but this is set to be phased out this month.
Standard Chartered issued $750mn of preference shares in 2006 with an interest rate that was later linked to Libor. But the prospectuses did not set out what would happen if Libor was scrapped.
The bank has tried to switch from Libor to an alternative rate known as SOFR, or the Secured Overnight Financing Rate, but has met resistance from its investors.
Their lawyers are set to argue that SOFR, which is insensitive to risk, acts very differently to Libor during times of economic and financial crises, and is therefore an inappropriate substitute, according to documents seen by the FT.
Standard Chartered sought a consent solicitation from its investors in January last year over switching the rate, but it was denied.
The bank then began legal action this June to force through the change. Several investors, including DE Shaw’s Galvanic Portfolios fund and three funds run by Boston-based hedge fund manager Bracebridge Capital, requested to be added to the suit as defendants.
The case will be heard over five days at London’s commercial court, starting on Friday, with a decision expected by the end of October.
Lawyers for the investors are expected to call on Standard Chartered to redeem the shares and reissue new shares with the updated interest rate.
Standard Chartered and DE Shaw declined to comment. Bracebridge did not respond to a request for comment.