But in keeping with the twists and turns of this plot, and the powerful public relations machines churning in the background on behalf of all the parties involved û it seems everyone is claiming victory.
First, the background - which includes a cast of characters that comprise a veritable WhoÆs Who of Indonesian businessmen. Deutsche Bank and PT Dianlia Setyamukti (an Indonesian company headed by Edwin Soeryadjaya, son of Astra founder William Soeryadjaya) were sued by Beckkett Pte, a Singapore-registered company that in 1997 owned just shy of 60% of the shares in Adaro Indonesia, a coal mine in Kalimantan. Two of the key owners of Beckkett are Raja Garuda Mas, headed by Indonesian pulp and paper tycoon Sukanto Tanoto, and Tirtamas, headed by Hashim Djojohadikusumo, an associate of former president Suharto.
Beckkett filed suit after PT Asminco Bara Utama defaulted on a $100 million bridging loan extended by Deutsche Bank in October 1997. Asminco owned a 15% stake in Adaro and took out the loan in order to fund a share purchase that increased its ownership to 40%. The guarantor of the loan was Beckett, which owned Asminco and pledged all 40% of its shares as collateral. It defaulted on the loan in May 1998 û the height of the financial crisis, so unsurprisingly Deutsche Bank was not able to provide take-out financing in the form of a CB or syndicated loan.
Over the next three years, a series of agreements were made and Deutsche Bank did not foreclose on the loan. But then in February 2002, Deutsche informed Beckkett it had foreclosed on the loan and sold the pledged shares to Dianlia for $46 million û essentially enabling Deutsche Bank to recover 46 cents on the dollar.
At the time, even competitors patted Deutsche Bank on the back û an international bank had managed to realise collateral in Indonesia in the aftermath of the financial crisis. But the celebrations were quickly halted. Law suits unfolded in Indonesia, where the assets are located, and in Singapore, where the bridging loan was signed.
In Singapore, Beckkett claimed that there was a conspiracy between AdaroÆs management team, Deutsche and Dianlia to sell the Adaro shares at a fraction of their real worth. In essence, BeckkettÆs two so-called passive shareholders (Sukanto Tanoto and Hashim Djojohadikusumo) argued that they believed there was sufficient cash to service the loan and management should have restructured the loan rather than allow it to fall into default.
Beckkett alleged that the management group acted in conspiracy with Dianlia and Deutsche to buy those shares û pointing out that most of the funding for DianliaÆs $46 million purchase of the shares from Deutsche Bank appear to have come from a $40 million loan obtained by Adaro from Bank Mandiri. That loan appeared to be on-lent to Dianlia as an interest-free loan.
But the Singapore court found no conspiracy. "However interesting the funding arrangements may be, they do not relate to issues of conspiracy," Judge Kan Tin Chiu said in the 68-page judgment.
ôThis judgment fully vindicates Deutsche Bank's legal position and actions in recovering a long overdue debt,ö Mike West, a Deutsche Bank spokesman in Hong Kong, wrote in an e-mailed statement on Friday. ôIn confirming the lenders rights, it will be welcomed by the broader banking community.ö
Similarly, Dianlia said in a press release: ôThe verdict in favour PT Dianlia Setyamukti vindicates the position we have maintained all along that the companyÆs purchase of shares in PT Adaro Indonesia complied with all prevailing Indonesian laws, was legally binding, and was a bona fide and lawful purchase of the shares in good faith.ö
However, BeckkettÆs Sukanto Tanoto and Hashim Djojohadikusumo also claimed that Deutsche Bank failed to take steps to obtain the best possible price for the shares. The court found that while Beckkett didn't show that Deutsche Bank sold the shares for less than they were valued at the time, the judge did find that Beckkett made a case that Deutsche Bank didn't discharge its duties as a "pledgee" when it sold the shares. And so he ordered the bank to pay Beckkett S$1,000 ($665) in damages, which has prompted Beckkett spokespeople to claim victory as well.
But Beckkett had wanted its shares back and more than $100 million. So spin this as much as you like, but the nominal S$1,000 payment in damages can hardly be viewed as a victorious result. And the court also ordered Beckkett to pay the legal fees of the two defendants in relation to the dismissed conspiracy claim, which will clearly amount to far more than S$1,000.
On the other hand, Deutsche was ordered to pay Beckkett's costs for its counterclaim for $98 million in outstanding loan principal and interest. The counterclaim was denied in part because Deutsche declined to call any witnesses û and thus prove its own case. Rather Deutsche Bank took the position that Beckkett wasnÆt able to prove its case.
While everyone tries to spin a win, one can't help but think that perhaps the
biggest loser is Indonesia itself. That defaults happened during a crisis is reasonable. But the fact that there is still a prevailing sense that trying to recoup losses by selling collateral could land one in court doesnÆt help the nationÆs credibility as it looks to the international community (particularly in mining) for a financial helping-hand in its effort to develop.
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