Tokyo Financial Group Divorces Thai Hire Purchase Firm

The troubled Tokyo-based financial services group J Trust Co. Ltd. announced today (Nov. 30) that it is parting company with the scandal-ridden Group Lease PCL hire purchase firm being investigated by Thai authorities for fraud. However, the divorce runs the risk of bankrupting its subsidiary J Trust Asia.

In a press release on its website, J Trust said the company “is committed to making utmost effort with a view to reaching a conclusion before the end of November, based on engaging in close consultation with the relevant authorities as well as complying with applicable law and by-laws, and the rules of the Stock Exchange of Thailand and the Kingdom of Thailand.”

That marks a dramatic about-turn from Nov. 15, when J Trust announced via its website that it was offering to take over Group Lease outright despite the fact that the Stock Exchange of Thailand and the Thai Securities and Exchange Commission had filed a criminal complaint against the company’s chief executive officer, Mitsuhi Konoshita, for fraud, and temporarily suspended its shares from trading.

On Oct. 27, Group Lease, which provides financing for motorcycle purchases and agricultural equipment, said its auditors had refused to sign off on its books. Mitsuji Konoshita has been replaced as president by his brother, Tatsuya Konoshita, and has left the country in the face of the charges.

J Trust currently 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.

In its press release, J Trust said only that it would “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, there are no covenants that have been breached, making it questionable whether legally J Trust could collect their money.

There was no mention of the decision on the Bangkok-based Group Lease’s website. However, there are questions of what might be left of Group Lease. Anonymous Equity, a mysterious gadfly shareholder activist organization, released a devastating report in early October that described Group Lease as little more than a Ponzi scheme and later issued a follow-up saying it expected the company’s share price to fall to zero.

A one-time penny stock, Group Lease’s share price has cratered since Dec. 16, when it reached a high of Bt69. Today it bottomed out at Bt7.20, or 2.2 US cents

Thai authorities are said to have taken the case extremely seriously and are believed to be going after not only Group Lease but a cluster of share sales operations in Bangkok that have been characterized as “pump and dump” operators who inflate share prices through fraudulent practices and then dump them on retail investors, who subsequently are left with worthless holdings.