Valuing expropriated assets in a collapsing economy

Osborne Partners was instructed in relation to a bilateral investment treaty dispute involving a global consumer goods company’s operations in a South American country. Our task was to value the business in a context shaped by hyperinflation, multiple official exchange-rate mechanisms, foreign exchange controls, and material gaps in historical data.

Expert:

Chris Osborne

Montek Mayal

Oliver Watts

Ayush Banka

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Investigate

Our work began with an analysis of the relevant economic backdrop and how it affected the company’s ability to operate. From 2014 onwards, a sharp deterioration in macroeconomic conditions and foreign exchange availability created practical constraints for businesses seeking to import essential inputs and manage working capital.

A central issue for valuation purposes was the existence of several official exchange-rate mechanisms, which applied differently depending on the type of transaction and the nature of the underlying activity. Determining which exchange rates were relevant to the company’s operations, and when, was key to establishing a coherent and supportable valuation framework. We also worked through the implications of the company’s decision to cease operations in 2018 and relocate personnel, which meant financial records were not always readily accessible and required careful reconstruction and verification.

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Evaluate

In a hyperinflationary environment, the choice of currency for valuation was critical – using the local currency risked distorting the picture. We therefore modelled cash flows in U.S. dollars to maintain stability and comparability. We tested whether the business could have realistically raised local prices in line with runaway inflation without destroying demand – a key determinant of value.

Another major issue was cash reserves. With dividend payments blocked by foreign-exchange restrictions, large sums of the local currency had accumulated in the subsidiary. We demonstrated that had dividends been paid out earlier at prevailing rates, the parent company would have received significantly more dollars than by leaving funds trapped.

Finally, we addressed the application of the country’s risk premium. Rather than applying an arbitrary uplift to discount rates, we argued for a more nuanced approach, adjusting assumptions within the cash flows themselves to reflect risk directly.

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Communicate

Our conclusions were set out in a structured valuation report that explained the economic context, valuation framework and key assumptions in a transparent way. The report was designed to help the tribunal follow how macroeconomic conditions, exchange rate mechanisms and operational constraints translated into valuation inputs, sensitivities and outcomes.

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Service

Valuation

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Expert

Chris Osborne

Managing Director

Our Managing Director, Chris, brings decades of experience leading expert analysis in high-value disputes and regulatory matters worldwide.

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Expert

Montek Mayal

Partner

Montek is Partner and Practice Head for Asia and the Middle East. He is recognised as a Global Elite Thought Leader in arbitration expert witness by Lexology and GAR.

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Expert

Oliver Watts

Partner

Oliver leads our Singapore office and has extensive valuation and dispute expertise. He is recognised as a leader in arbitration expert witness by Lexology and GAR.

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