Dicey Deals

May 24, 2011 (LBO) – Sri Lanka is continuing its legal defence in action filed by international banks over petroleum derivatives sold to a state-run oil distributor, the government’s top legal officer said. Fitch Ratings said the fine was bigger than the local branch’s capital but its rating was unaffected due to expected support from the main bank.

Banks sought arbitration or court proceedings to recover dues under complex options positions sold to Ceylon Petroleum Corporation, after it refused to pay up when oil prices collapsed in 2008.

Sri Lanka’s central bank has said the deals were tainted. The derivatives were sold by Standard Chartered, Deutsche Bank, Citibank and Sri Lanka’s state-run People’s Bank and listed Commercial Bank.

The value of the contracts have been variously valued at around 400 million dollars in various reports.

Citibank filed for arbitration in Singapore, but there is no decision on the case yet.

“The order has been reserved,” attorney general Mohan Peiris said. “We just put in our written submissions.”

A case filed by Standard Chartered Bank in London will be taken up again on Thursday, Peiris said.

Sri Lanka’s Central Bank slapped a