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which would occur simultaneously with petitioner's debt-equity
conversion. Petitioner negotiated the purchase of IFC's PCC stock
at arm's length.
Once the parameters of the acquisition had been established,
NBM wrote to the Central Bank on April 2, 1987, seeking its consent
to engage in a debt-equity conversion (pursuant to Central Bank
Circulars 1.125 and 1.492, Central Bank Resolution 1.189, and the
1986 DFA) that would enable the use of blocked deposits with a face
amount of approximately $12.5 million to acquire 32,524,650 shares
of PCC common stock (the 14.361-percent equity interest).
In order to execute the transaction, on April 7, 1987,
petitioner formed a wholly owned Cayman Islands subsidiary,
Minnetonka Overseas Investment, Ltd. (MOIL), which in turn formed
a wholly owned Brazilian subsidiary, Minnetonka Representacoes
Comerciais, Ltda. (MRC). (MOIL and MRC are controlled foreign
corporations within the meaning of subpart F of the Internal Revenue
Code.) Petitioner chose this arrangement in order to allow it the
maximum flexibility in the future disposition of its investment.
Also on April 7, 1987, MOIL notified the Central Bank that
NBM's blocked deposits would be converted into MRC risk capital.
This capital would be used to purchase the PCC stock. The
conversion was to occur on April 14, 1987. Petitioner, through MRC,
requested that the Central Bank register MRC's investment as
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