The embattled Group Lease PCL, a darling of Thai and US investors until officials started pursuing it for fraud in October, is setting up for a battle royal with its biggest investor, the Tokyo-based J Trust Co Ltd over as much as US$250 million that J Trust is attempting to retrieve.
Group Lease has put out a statement saying it has violated no covenants that would require the return of the funds to J Trust.
The threatened divorce between the two thus threatens the economic future of both and has implications for the California Public Employees Retirement Board, the US’s biggest public employee retirement system, and Taiyo Pacific Funds LLP, a Kirkland, Washington-based fund whose chief investment officer was Wilbur Ross, US President Donald Trump’s Commerce Secretary. CalPERS through Taiyo Pacific and Taiyo Pacific itself are major investors in J Trust.
A recently-filed US$700 million lawsuit in Mauritius against J Trust, J Trust Asia and former owners of the shuttered FBME Bank Tanzania contains multiple allegations of money laundering, bribery and theft, complicating matters for the divorcing parties.
Group Lease built its cachet with investors on a pitch that farmers, fishermen and small shopkeepers in rural areas of emerging countries needed money to expand, own transportation and obtain lights and electricity and that the hire purchase company was there to provide the funding in expanding markets in Southeast Asia including Thailand, Myanmar and Indonesia.
A penny stock that critics say skyrocketed in price via stock manipulation, Group Lease’s market capitalization leapt to US$2.9 billion although the company had only US$482 million in assets even after J Trust’s investment. After the Thailand arm of the accounting firm E&Y reviewed its financial statements and issued nine pages of qualifications over intercompany loans, the shares plummeted. After topping out at Bt69 last December, they are now languishing at Bt7.10, the equivalent of about 22.1 US cents.
On Oct. 16, Thailand’s SEC stepped in with a criminal complaint alleging Group Lease had concealed transactions, embezzled money, laundered J Trust funds and prepared inaccurate accounts that showed US$54 million dollars in fraudulent loans and exaggerated interest income from business operations at 14-15 percent per year. The company’s chief executive officer, Mitsuji Konoshita, left the country and was replaced by his less-experienced brother Tatsuya. Subsequently, the hire purchase firm’s auditors refused to certify its accounts.
On Nov. 30, the Tokyo-based financial services group announced it was parting company with Group Lease and demanded the return of its US$180 million investment in the hire-purchase company, only to have Group Lease say it intended to return nothing.
J Trust holds 122.2 million Group Lease shares through a subsidiary, J Trust Asia Pte Ltd as well as US$180 million of the company’s convertible bonds and 20 percent of Group Lease Finance Indonesia, which J Trust is committed to keeping. It also has US$45 million worth of stock exposure. J Trust thus has an estimated US$250 million worth of exposure to Group Lease and could possibly lose it all while bankrupting its Singapore investment arm, J Trust Asia.
In a statement in its Investor Relations section of its website, J Trust said only that it would seek to “amicably curtail the relationship” between the two concerns and that it was cancelling all agreements on the convertible debenture and asking Group Lease to “repay and backstop all the investment in GL.” It is demanding immediate repayment and is proposing to take over Group Lease’s hire purchase business in Indonesia.
However, Group Lease issued its own statement on Dec. 4 saying “the company has considered the representations and the events of default in details, including the opinion of legal counsels on such matter, and confirms that at the moment no breach of any representations given to J Trust Asia under the Investment Agreements or event of default has been constituted or occurred. Therefore, the company is of the view that J Trust Asia could not cancel the investment agreements or demand the company to repay its investment by relying either on the ground of breach of representation or occurrence of event of default.”
In any event, Group Lease said, “the company would like to confirm that it has always been in full compliance with the terms and conditions of the investment agreements and currently the company is not in breach of any of the terms and conditions of the Investment Agreements with J Trust Asia, and the Company has no duty to repay J Trust Asia early in any amount either by virtue of agreement or law. For these reasons, please be advised that the Company would continue to comply with its obligations and in pursuance of the rights of JTA available under the Investment Agreements.”
However, the release continued, “in case the company is conveyed by J Trust Asia of any official proposal in relation to the convertible debentures or other matters, the company would be pleased to consider such proposal on case by case basis. In this regard, the company would advise further of any discussion with J Trust and/or JTA or any developments as appropriate.”
The proceedings almost inevitably could prove to be mutually destructive to both Group Lease and J Trust Asia and are reminiscent of J Trust executive Nobuya Fujisawa’s history as a senior executive during the controversial bankruptcy of Livedor Credit in Japan. J Trust may need to consider marriage counseling or face a devastating divorce outcome.