Amid spectacular bribery allegations and accusations that the verdict had been decided in Lippo’s favor before the two sides ever entered the courtroom, an Indonesian court has rejected a lawsuit by two companies that cooperated with PT Mahkota Sentosa Utama (MSU), the developer of the Meikarta megaproject owned by the Indonesian conglomerate Lippo Group.

PT Relys Trans Logistic (RTL) and PT Imperia Cipta Kreasi (ICK), which created and ran a huge, expensive marketing campaign for the proposed new city, sued the Lippo subsidiary in May, accusing it of not paying advertising costs that have matured, using a legal mechanism called Postponement of Payment Obligations (PKPU).

Under Indonesia’s Bankruptcy Law, a PKPU is issued if the debt is deemed unenforceable or it is assumed that the debtor won’t be able to continue payment of matured debts. The PKPU is somewhat equivalent to Chapter 11, the US bankruptcy mechanism which protects debtors while restructuring is carried out. The PKPU process is designed to achieve peace between debtor and creditor without forcing the former into bankruptcy. RTL and ICK are attempting to collect debt totaling Rp37 billion (US$2.7 million).

But Judge Agustinus Setya Wahyu Triwiranto ruled that the two vendor companies hadn’t been able to prove that Meikarta's debt had matured, a formal requirement of the PKPU submission.

"I hereby reject the application of PKPU to PT Mahkota Sentosa Utama," said Agustinus in Jakarta District Court on Thursday.

PT MSU is a subsidiary of Lippo Group, owned by the octogenarian tycoon Mochtar Riady, whose wealth is estimated by Forbes at US $3 billion although there are widespread reports that the conglomeration is flailing under a huge debt load and shedding units to produce cash. Lippo's assets include property, retail, health, media, and education. Lippo Group owns the holding company of Lippo Karawaci, which builds and manages residential dwellings, hospitals, malls and hotels and deals in asset management.

The conglomerate, however, may have bitten off too much with the Meikarta development, a huge new city on the outskirts of Jakarta being built from scratch and projected ultimately to house up to 8 million people at a whopping cost of more than US$21 billion. Mahkota Sentosa Utama poured more than Rp1.5 trillion (US$107.65 million) into advertising alone throughout 2017, leading Indonesian companies in ad spending for the year according to Nielsen ratings. The project has at least 19 global partners.

Meikarta faces not only financial problems, but also a series of political issues and the antipathy of a group of conservative Muslims. Riady is of Chinese descent and Lippo actively supports the building of Christian schools in Indonesia. A group called Alumni 212, which refers to 2 December 2016 (2/12/16) demonstrations against the Chinese-Christian former Jakarta Governor Basuki Tjahaja Purnama over allegations that Ahok, as Basuki was known, had blasphemed the Quran. He lost the ensuing election and was jailed on blasphemy charges that many believed were trumped up.

Alumni 212 is said to be actively spreading negative reports about Meikarta through social media. In May, Alumni 212 issued 12 resolutions, one of which was to call for the end of the Meikarta project. Those negative issues included allegations of abandonment of strategic investors, not paying contractors, trimming marketer incentives, unfinished licensing, and that some of the project is in flood-prone locations.

In addition, the construction by a Chinese national consortium of a 150-km. fast railway project between Jakarta-Bandung, which is considered crucial to Meikarta as the new city straddles the railway, has hit delays from problems clearing the land. The US$5 billion project, built by the Indonesian government in cooperation with the Chinese consortium, is now due to go into operation in 2021 two years after the original target date of 2019. Development progress is currently at 5 percent, from a 25 percent target by the end of the year.

The Communications Director of MSU Danang Kemayan Jati said that despite facing various obstacles, Lippo Group’s financial condition is sound enough to support projects planned and to fulfill the company's obligations, despite the negative issues that Meikarta faces.

Bribe Issues

In the middle of the trial, the plaintiff's legal counsel, Tommy Sihotang, suddenly said three people who claimed to be messengers from Meikarta met with his client on July 4,the eve of the proceedings, to offer Rp3 billion (US$214,000) and another Rp5 billion (US$357,000) later along with several apartment units in Meikarta as debt repayment to drop the lawsuit. They refused.

However, according to Sihotang, the three claimed to know in advance that the judge would nullify the lawsuit.

"After we refused, they said that 'It is up to you to accept or refuse, we already know the verdict.’ This is the point. How did they know the verdict before it was read?”

The judge denied that he had made a deal with Meikarta to kill the case. Sihotang at that point denied accusing the judge of making such an agreement but said his clients would refile the same lawsuit. PKPUs can be submitted repeatedly.

MSU’s lawyer Ari Yusuf Amir said Sihotang's statement was an insult to the panel of judges. He dismissed Sihotang's allegations that his client was trying to "offer" money to RTL and ICK. Instead, he said, outside negotiations related to PKPU cases are common.

"Because this is a PKPU case, it is natural that negotiations take place outside the court, but we make sure we would never do what the applicant (Sihotang) mentioned," said Ari.

The Board of Directors of PT MSU Reza Chatab stated that the bills submitted by the two vendors weren’t authorized and weren’t signed by MSU officials. In fact, the value listed in the document is very huge. "The documents filed by the Petitioners are allegedly fictitious, legally flawed, not a valid charge," Reza said as quoted by kompas.com.

Negative Issues

Despite Lippo’s assurances of financial soundness, analysts are concerned about the sustainability of Meikarta's development amid group financial problems and the negative issues. Hans Kwee, an analyst at Investa Saran Mandiri, said Lippo Karawaci is ambitious enough to target the construction of up to 92 towers in Meikarta, with 18 towers built this year with funds of around Rp5-6 trillion. In the midst of these large funding needs, Lippo Karawaci will also face debt payments that will mature in 2018-2019. "Lippo needs another potential partner to develop the project," he said.

In June, Moody's Investors Service assigned a B2 rating to US$75 million of senior unsecured notes due in 2020 that were issued by Theta Capital, a subsidiary of Lippo Karawaci. The agency warned that 79 percent of Lippo Karawaci's total debt at end-March was unsecured and that the proceeds from the private placement covered only around half of its debt maturities in 2018 and 2019. Consequently, Moody’s said, the company must find other ways to improve its liquidity in 12 -18 months ahead.

In February, Fitch Research also downgraded Lippo, from BB to B+ although it said the conglomerate’s outlook was stable.

Asia Sentinel

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