Indonesia Dumps Failing Bank
Meanwhile, in Indonesia, Bank Mutiara itself continued under the administration of the Deposit Insurance Corporation, a quasi-government corporation that insures depositors’ savings. It was hemorrhaging cash when the government put it up for sale. In 2014, the bank was reported in local media to have been sold for US$363 million to J Trust Co Ltd and was rebranded as PT Bank J Trust Indonesia.
Before it could be sold, the government first had to inject US$104 million in early 2014 to maintain stated capital at US$50 million. Twenty-one bidders melted away after two rounds of bidding only to have J Trust move into the process at the last minute, taking it over in September of 2014 at an indicated cost of US$363 million – six times the stated book value.
Strangely, there is no record of US$363 million ever leaving the J Trust balance sheet either in the remaining quarters of 2014 or fiscal year 2015/2016. Yet shares were transferred to J Trust on Nov. 20, 2014, the six-year anniversary of the expropriation of the bank and the mandatory deadline to sell.
The recorded price, inclusive of US$240 million of capital and subsequent injections through last week, was said to be the highest ever paid for a bank in an emerging market, according to an analysis by Bloomberg.
That raised questions why a Japanese firm was willing to pay more than US$350 million for a bank with virtually no assets, a huge debt load and a history of money-laundering and corruption. The sale price is believed to have been the highest book-value premium for a bank in the history of Southeast Asia.
After taking over the bank, J Trust Bank recorded losses in US$52 million in FY2014, US$51 million in 2015 and US$48 million in 2016. However, J Trust in late March moved to counterbalance those losses by injecting a further US$75 million (Rp1 trillion) into the bank’s capital base and for the first time doing it on a dilutive basis.
That is a curious development and strategy as they already own and control more than 95 percent of the bank’s stock, with its partner Group GL Finance owning about 3 percent. Thus diluting themselves and their partners, costing them a fortune.
The answer lies in their recent Jakarta Stock Exchange announcement that the US$75 million investment would be injected at a value of 10 percent of the entire stock capital base of Bank J Trust, effectively valuing the bank at a whopping US$750 million, or RP9.9 trillion.
That has created a bank value on paper that now exceeds J Trust’s purchase price by more than US$380 million, generating a huge non-cash book profit and giving the illusion that the bank is actually worth US$750 million.
Massive Losses in Thailand
That book profit may be necessary to cover massive losses in Thailand where, in 2015, J Trust virtually took over a Thai penny stock company called Group Lease Pcl, which provides leases for poor peasants in Thailand and Cambodia to buy motorcycles at usurious rates.
Over the intervening months, J-Trust agreed to buy Group Lease convertible bonds that drove the company’s market cap to US$2.9 billion although the company had only US$482 million in assets. At that point Group Lease shares were trading at almost 100 times estimated earnings, according to a Bloomberg wire story published in the Bangkok Post.
Eventually the Thailand arm of the Ernst & Young accounting firm reviewed the 2016 financial statements for Group Lease and issued nine pages of qualifications raising concerns over intercompany loans to an unknown affiliate in Singapore, which in turn loaned out close to US$100 million to other affiliates and related parties in Cyprus and Singapore whose names Group Lease executives refused to disclose. When the Thai authorities asked for an explanation, the shares plummeted by 56 percent.
J Trust has invested more than US$220 million into Group Finance since 2015, increasing its market value from US$250,000 to US$2.9 billion in December 2016, but not for long. It has fallen spectacularly since the Ernst & Young qualifications were reported by Khao Yoon, a leading Thai newspaper, and Bloomberg. Group GL Finance’s market value plummeted to less than THB35.5 billion, wiping out US$2 billion of market capitalization and destroying J Trust’s implied noncash gains on it GL convertible bonds and stock holdings going into its fiscal year end of March 31.
The ties between Bank J Trust, J Trust and FBME Bank Cyprus were well documented as a money laundering operation in the Peter Brown report mandated by Quinn Emanual. Group GL recently announced it is extending its operations into Cyprus. A small Thai company that has moved from leasing motorcycles to financing solar panels and farm equipment in Indonesia is now expanding their unique business model to Cyprus, Russia and eastern European leasing and banking.
With advisors like WL Ross and Co., Invesco Capital and Taiyo Pacific on board, as advisers to J Trust, it now may be time to move into the big leagues. Leasing and money transfers between Indonesia, Japan, Thailand, Korea and now Cyprus are where the money really is.