New Mystery For Controversial Japanese Group

The Japanese conglomerate J Trust Group, which has come under the spotlight for a series of financial inconsistencies in Indonesia, Thailand and Cyprus, has added another. On April 14, an apparently frustrated J Trust put out a press release accusing the South Korean Financial Services Commission of refusing to act on a J Trust request to acquire 100 percent of the Busan-based DH Savings Bank Co.

“We have contacted the Financial Authority constantly to become a major shareholder in the bank,” according to the news release. “However, our approval request for acquiring the third savings bank, following Chinae Savings Bank Co. Ltd. and JT Savings Bank Co. Ltd., our other two subsidiaries, is yet to be received six months after the conclusion of the agreement. For this reason, we decided to cancel the agreement at 12 midnight on April 15, 2017, and call off the Share Acquisition.”

There is only one problem. A Financial Services Authority spokeswoman in Seoul said in a telephone conversation that J Trust has never applied for approval.

“There was no official request from J Trust for approval for the application,” the spokeswoman said. “I do not know if J Trust ever contacted us.”

Asked if J Trust might have contacted the Financial Services Commission informally and was told the application would not be approved, the spokeswoman said she didn’t know.

“I think they are under investigation by a number of global agencies,” said a source with extensive knowledge of J Trust’s dealings. “I think they have gone to deep cover.”

Emails to Keiko Nishihara, in charge of overseas public relations for J Trust, elicited no response. A spokesperson for DH Savings Bank In Busan said he knew nothing about the J Trust case and refused to provide an email so Asia Sentinel could send a formal query.

However, it is the latest in a series of questionable affairs involving the Japanese group, whose parent is Ikko Shoji Co. Ltd. Its purchase of Bank Mutiara in Indonesia has been dogged by vast losses of about US$50 million per year in fiscal years 2014 and 2015 plus – according to Nishihara in an earlier email – operating losses of approximately US$72 million in 2016 and US$59 million in the first three quarters of FY2017, which Nishihara attributed to “provision for bad debts – a negative legacy from former managements.”

J Trust paid US$363 million for Bank Mutiara in 2014, raising questions why it paid so much 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.

J Trust was also the subject of recent controversy in Thailand, where it took control of a Thai penny stock company called Group Lease Pcl, which provides leases for poor peasants in Thailand and Cambodia to buy motorcycles and agricultural equipment. Over the intervening months, as Bloomberg reported, 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 the Bloomberg 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.

Investors in the Japanese parent include the Kirkland, Washington-based Taiyo Pacific Funds LLP, whose CEO and founding partner is Brian K. Heywood, and include Wilbur Ross, the Trump administration’s commerce secretary, formerly known as the “king of bankruptcy” for buying up distressed companies and selling them off later. The California Public Employees Retirement System, or Calpers, is also an investor.