Indonesia's Bank Century Mess Goes Global
Some of the last vestiges of one of Indonesia’s biggest scandals – the collapse of PT Bank Century TBK in 2008 and its subsequent US$710 million bailout – are playing out in a Singapore courtroom, where a Mauritius-based hedge fund is trying to find out what became of more than US$115 million that the fund claims as its own.
That is only part of the money that Weston International Capital’s subsidiary, Weston International Asset Recovery Co. Ltd., is seeking across the world. Weston specializes in buying up distressed debt. It is alleging that the Bank Century debt it bought has disappeared into a pretzel palace of companies spread from Japan to Singapore to Switzerland to Cyprus and to a number of other unknown countries. Weston is trying to corner the new owners of Bank Century, a mysterious Japanese trust, in courts across the world.
The story began in 2011, according to John Liegey, Weston’s CEO, when he had lunch with an official from the Netherlands-based ING Bank, who “told me a story about a US$215 million loan they made to a multi-millionaire British businessman named Rafat Rizvi, and that ING had collateral in a portfolio worth US$725 million that they were facing difficulties collecting.”
Weston spent six months doing due diligence and eventually took over the collection process for two convertible bonds issued by Bank Century, underwritten by the London-based Nomura International Plc plus over US$700 million of Nomura debt obligations with the idea that through litigation and other means, the debt could be converted into equity or cash as a recovery on the loan collateral.
“We looked at the portfolio and determined there were two Bank Century Convertible bonds we knew we could collect on, totaling US$80 million of defaulted debt,” Liegey said. “But when we started unfolding the extent of the Bank Century fraud, it was beyond anything I have ever seen in 38 years in this business.”
Asked why he made the decision to buy into distressed debt in Indonesia, with its opaque courts and fungible financial system, Liegey, who founded the Weston International Capital subsidiary in Mauritius in 2011, replied: “My board of directors and shareholders ask me that almost every day.”
Weston has been suing in courts in Mauritius, Hong Kong, New York and most lately in Singapore to try to recover the money. Weston did succeed in collecting over US$10 million cash and the rest in convertible bonds notes and Nomura-issued fund linked notes bringing the total to US$725 million in the Hong Kong courts in 2013. The disposition of the securities is still being negotiated.
Weston and its wholly owned subsidiary, First Global Funds Ltd., believe much of the money still to be collected is still in the hands of Robert Tantular, the Bank Century beneficial owner who went to jail in 2008 and remains in prison today – although Indonesian prisons tend to be porous and well-wired inmates often are able to take extended leave.
Quintessential Indonesian Story
Bank Century is a quintessentially Indonesian story. The bank capsized in 2008 at the height of the global financial crisis, threatening the entire banking system to the point that then-Finance Minister Sri Mulyani and Boediono, then-Central Bank Governor, poured US$710 million into the effort to save the corruption-riddled financial institution, a move that cost Sri Mulyani her job as opponents of reform attacked her in the Indonesian legislature on charges of corruption.
Much of the funds poured into the bank to save it consequently disappeared, spirited out to Indonesian and Singaporean banks. The scandal largely brought economic and political reform efforts championed by former President Susilo Bambang Yudhoyono to a stop. Some US$350 million of Indonesian Government bailout money appears to be completely untraceable and is believed to be in the hands of some of Indonesia’s most prominent politicians.
Although 26 Bank Indonesia auditors were inside Bank Century during its dying days in 2008, led by Deputy Governor Budi Mulya, Tantular continued to siphon money out until the day the bank was expropriated, allegedly defrauding Bank Century shareholders and depositors. Budi Mulya ended up being sent to prison in 2014 for taking loans from Bank Century while regulating the Bank.
Sri Mulyani ended up leaving Indonesia to become Managing Director of the World Bank. Both Boediono and Yudhoyono are said to have been ensnared in the scandal. Reports in local media hint that Boediono is still under investigation by the fearsome Corruption Eradication Commission (KPK) although no charges have ever been announced.
Bank is Nationalized, Mutates
The bank was taken over by the government and renamed Bank Mutiara in 2008. Tantular was sentenced to nine years in prison which was recently increased to 10 years on money laundering and fraud charges. Other bank directors were also arrested and jailed although Rafat Ali Rizvi spent several years on the run before he reached a settlement with the Indonesian government through the Organization of Islamic Cooperation (OIC) arbitration panel.
Earlier this year, the bank mutated again, into Bank J Trust Indonesia after it was acquired by a Japanese finance company, J Trust Co., Ltd. Liegey said Weston has been unable to ascertain the true ownership of the Japanese JTrust entity or its Indonesian subsidiary, or what its rationale was in buying the bank.
“Real investors would never pay the outrageous purchase price of Rp. 4.41 trillion (US$368 million) for a bankrupt bank in an auction process with no bidders,” Liegey said.
Weston International Capital, which is suing J Trust as well as the former Bank Mutiara, alleges that J Trust and PT Bank J Trust Indonesia TBK defaulted on US$80 million in convertible bonds, US$21.5 million in bank deposits and US$14.25 million of other liabilities totaling US$115.75 million which disappeared from Bank J Trust correspondent bank accounts despite a court order freezing accounts to keep the money from being moved overseas.
Marc Helie, Chairman of Chevalier Investments LLC in New York, a veteran distressed emerging markets investor, sits on the Bank JTrust bondholder committee and maintains that the bank’s convertible bonds are legal obligations.
“J Trust bought the Bank with full knowledge of assuming all of its debt obligations. It’s a solvent bank, newly capitalized with a parent company in J Trust that is sitting on over US$1 billion of cash and has a responsibility to honor these obligations in full.”
“In summary there is no money to collect in New York and London from any of our judgments from Bank J Trust’s correspondent banks as their accounts have all been totally depleted, closed or frozen under Weston Global Mareva Freezing Orders. We are litigating in Singapore because that’s where J Trust has all its money.” a Weston spokesman said.
Weston has also demanded that the Tokyo Stock Exchange suspend all trading in JTrust common stock pending further investigation for fraud.
The Bank Century action has continued in Zurich, where Nomura sought successfully to stop the Indonesia Deposit Insurance Corp. (LPS) and Bank JTrust Indonesia TBK from claiming back US$156.2 million in a commercial court from Tarquin Ltd, a wholly-owned Nomura subsidiary that Weston claims was the subject of an asset management agreement between Bank JTrust, Telltop Holdings and Tarquin . The court ruled in Nomura’s favor on July 9 in a decision that is permanent and unappealable.
Nomura must now pay back Tarquin, which allows for fulfillment of US$495 million of various securities agreements including US$440 million of Tarquin second secured notes.
“Surprisingly, the LPS (Indonesia Deposit Insurance Corporation) and J Trust directors have failed to publicly disclose these highly visible losses of over US$156,000,000 to the people of Indonesia and J Trust common stockholders,” according to a spokesman for Weston.
Those stockholders include W.L. Ross & Co. owned Taiyo Pacific Partners LP, JP Morgan Asset Management Japan, State Street Bank and Trust, Norges Bank Investment Management, Vanguard and Blackrock Group.
It remains to be seen what the next step is and how Weston and the other Bank JTrust Convertible Bond holders will collect their money. Given Japanese corporate ability to move the pea between the shells, it is best to wait and see.