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India recoups $228 million euros from AgustaWestland deal

June 11, 2014, Milan, Italy - India has cashed in 228 million euros ($310 million) in bank guarantees backing a scrapped helicopter deal with Finmeccanica, people familiar with the matter said, in a move that may prompt the Italian state-controlled defence group to cut its 2014 targets.


June 11, 2014
By Carey Fredericks

India terminated the high-profile contract in January citing a breach of
integrity after allegations of bribery emerged in Italy against
executives at Finmeccanica's helicopter unit AgustaWestland a year
earlier.

The overall value of the multi-currency guarantee scheme
with German lender Deutsche Bank, Italy's Intesa Sanpaolo and the State
Bank of India was around 300 million euros.

India was able to
cash in two small bank guarantees but an Italian judge later blocked
efforts to recover the remaining 278 million euros. In May, an Italian
court revoked the freeze on 228 million euros of that amount and India
said it would take steps to recover the sum.

"The payment of the
guarantees for 228 million euros has been executed," one of the sources
told Reuters, noting that India was cleared to cash in only part of the
money because three helicopters had already been delivered.

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India,
which was advised by Hogan Lovells lawyers in the case, said it had
encashed the bank guarantee. "It was done about a week ago," a
government official said, asking not be identified because of the
sensitivity of the situation.

AgustaWestland, which was aided by Cleary Gottlieb Steen & Hamilton, and the banks declined to comment.

Finmeccanica
has said its 2014 targets do not take into account any negative
development on the deal. New CEO Mauro Moretti will have to deal with
the unexpected cash outlay as he seeks to turn around the heavily
indebted group.

Finmeccanica has guided for a net debt of around 4
billion euros at end 2014 while analysts see a slightly better showing
of 3.8 billion euros, according to Eikon estimates.

AgustaWestland
won the contested order in 2010 to supply twelve AW101 helicopters
partly produced in Britain to India's Ministry of Defence, winning over
rival Sikorsky, a unit of U.S. defence group United Technologies.

However,
the corruption scandal that emerged from an Italian investigation into
the deal has raised the spectre of a possible blacklisting of
AgustaWestland from India, one of the world's fastest growing defence
markets.

Finmeccanica has always denied wrongdoing and expressed confidence it will not be blacklisted from India.

The
probe into allegations of bribery led to the arrest of former
Finmeccanica Chairman and CEO Giuseppe Orsi and former AgustaWestland
CEO Bruno Spagnolini in February 2013. The two are now being tried in
the northern Italian town of Busto Arsizio on charges of international
corruption they both deny.

While the criminal case could come to
an end in the autumn, according to sources familiar with the matter, the
dispute over the 560 million euro contract may end up in arbitration in
India.

However, one of the people familiar with the matter said
there was no assurance the arbitration would go ahead following the
recent election victory of Narendra Modi led Bhartiya Janata Party.


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