An Awards Dinner's Unlucky Year
It was a gala night in Hong Kong at the Four Seasons last Wednesday, where a representative of Indonesia's Bakrie-controlled Bumi Group was there to receive an award for Asia’s best overall good corporate governance. Never mind that the conglomerate, headed by Aburizal Bakrie, singlehandedly wrecked the Jakarta Stock Exchange in October and has been under fire on suspicion of financial irregularities ever since.
The award was picked up by Dileep Srivastava, BUMI's Senior Vice President for Investor Relations and Corporate Secretary.*
Nor was Bakrie alone. Awards were passed out by The Asset, a Hong Kong-based financial magazine, to several severely-tested financial and other organizations. For instance the troubled US financial giant Citibank, which has fallen into a river of red ink and just recently went back to the US government to beg for more funds to stay afloat, was named the best bank in China, Australia, Indonesia, the Philippines, South Korea, Taiwan and Singapore, among other honors. Citi’s senior counselor, onetime US Treasury Secretary, Robert Rubin, announced his departure last week after acknowledging he had failed to monitor the US bank’s mounting toxic loans.
Citi took US$25 billion in Troubled Asset Relief Program funds in October, then another US$20 billion in November, plus getting guarantees on US$300 billion worth of toxic assets on its books. Citi looks increasingly likely to spin off additional assets to barely keep its two main business lines, retail and corporate banking, alive.
The Asset named Merrill Lynch, the troubled US investment bank, as the most innovative house in Asia, something Bank of America would probably agree with but for different reasons. Merrill Lynch sold itself to what was then a healthy BofA. Later BofA discovered Merrill Lynch’s vast amounts of toxic loans, requiring the bank to ask for US$20 billion in fresh capital from the US government and a guarantee on US$118 billion in potential losses on toxic assets. Merrill Lynch was also named the best investment bank in Pakistan.
UBS, Europe’s largest bank by assets, was named best Financial Institutions Group despite the fact that it was forced to write down US$712 million in third-quarter losses and its chief executive officer, Peter Wuffli, resigned in July after a major hedge fund collapsed and took huge amounts of UBS’s funds along with it. ``They didn't have very good control over what was happening at their investment bank,'' Mark Glazener, a fund manager at Rotterdam-based Robeco, which holds about $65 million of UBS shares, told reporters. ``It's still not very clear what is going on.''
None of this seemed to matter as the bankers and financiers popped in for the gala ceremony at the Four Seasons, although word of the awards didn’t leak out to the press in general.
Asset throws three of the gala awards dinners a year, raising suspicions that the events bear some similarity to getting your name in various Who’s Who publications – by buying space at a table although the magazine said the evening’s “considerable success certainly reflects a great deal of respect for the integrity of The Asset’s awards process.”
The Asset’s “annual Triple A* honors are the most prestigious in the finance industry due to their rigorous assessment process,” the magazine said on its website. “The awards recognize institutions and individuals that have made a significant contribution to the development of the finance industry in Asia.”
Don Rider, the director of sales and marketing, was somewhat defensive about the awards, particularly to Bakrie, saying that “This was an award that was handed out last year and he just picked up now. Submissions were done over the summer-time, and the follow-up and everything else has nothing to do with the latest information or anything else. We can’t be liable for what happened.”
At the time the winners were selected, Rider said, the Asian financial world was still in good shape.
The award certainly made PT Bumi Resources proud. “"Bumi always practices good corporate governance and these have visibly strengthened since the time we bought our
coal assets in 2001 and 2003 in Arutmin and KPC. This award from Asset magazine is impartial, based on well-researched data and is, therefore, greatly valued by us," said Dileep in a press release.
Good practices, Dileep said, “are ingrained in Bumi’s management philosophy embodied by its GCG mascot, called Mr. Spirit.”
That is not necessarily a sentiment shared by much of Indonesia’s financial or environmental communities. Bakrie, Indonesia’s chief social welfare minister, appears to be in a difficult continuing struggle to rescue his distressed empire, Indonesia’s biggest corporate entity, after its share price collapsed in October during the global financial crisis. According to a Jan. 19 story by the Reuters news service, Bakrie’s US$1.2 billion restructuring is in trouble, partly because the group appears to have links to at least one of the of the funds involved in attempting to rescue it, “reigniting questions about disclosure and corporate governance in one of Asia's most corrupt economies.”
Bakrie & Brothers, the holding company that controls the empire, is under continuing pressure to repay hundreds of millions of dollars in short-term debt incurred as commodity prices fell last year, according to Reuters. “It said it would sell assets including shares in its prized asset, Bumi Resources, the country's biggest coal miner and the kind of key resources company Indonesia considers of strategic importance. But one party in the debt restructuring, Brentwood Ventures, appears linked to the Bakrie group, raising questions about how willing the Bakrie group is to cede control over Bumi and about corporate governance in Southeast Asia's largest economy.”
Indonesia was ranked worst of 11 Asian markets in the Asian Corporate Governance Association 2007 survey which cited weak disclosure of material events, antipathy to corporate governance, extremely weak enforcement record of regulators, and lack of independence of the main securities regulator, Reuters said.
And, although Rider said Bakrie was doing just fine at the time the vote was taken in July, the conglomerate has been faced with financial and governance problems for more than a decade, when it defaulted on hundreds of millions of dollars in debt during the Asian Financial Crisis. Then there is the matter of a disastrous gas well blowout on the part of the Bakrie-owned PT Lapindo Brantas two and a half years ago in May of 2006, which caused the eruption of a mud volcano that has displaced more than 75,000 East Java villagers from their homes and turned into the biggest manmade environmental disaster in Indonesia’s history.
Lapindo Brantas claims the rupture was caused by a distant earthquake fault. The government may have held its nose, but although Bakrie has so far paid out Rp4 trillion to the displaced villagers for their land while denying culpability, Jakarta has assumed responsibility for cleaning up the disaster.
Nonetheless, The Asset can take comfort from the fact that Indonesia’s Environment Ministry even awarded Lapindo Brantas its “Oscar” for complying with safety and environmental standards.
*This story has been changed to reflect the fact that Dileep Srivastava picked up the award.