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Japanese Bank Tries Garage Startup Strategy to Raise Money
J Trust, the beleaguered Japanese financial conglomerate, has announced it would use crowdfunding, which is normally used by garage startups, in an effort to raise capital for its deeply troubled Indonesian division, which includes PT Bank JTrust Indonesia Tbk, PT JTrust Investments Indonesia and PT JTrust Olympindo Multifinance.
The company is using the crowdfunding scheme, it said in a prepared Nov 26 release, because it is “currently advancing business with the restructuring of operations at Bank JTrust Indonesia being an urgent priority. It has now decided to raise some of its capital as normal operating capital through the scheme in order to accelerate business growth in the Indonesian division.”
J Trust is seeking to raise a relatively paltry ¥150 million (US$1.36 million) with a target solicitation the equivalent of just US$91,175, according to the conglomerate’s press release.
Other sources said J Trust was likely seeking funds through unorthodox methods because it lacks access to funds from more conventional sources such as the Tokyo and Indonesia stock exchanges. It has been hamstrung by litigation on several fronts, particularly over its ill-starred US$257 million collaboration with the Thai leasing company Group Lease PCL.
According to its six-month financial statement for the six months ending September 30, pretax profit was minus ¥423 million (US$3.9 million) with a total net loss of ¥1.147 billion. Loss attributable to owners of parent was ¥3.675 billion, compared with loss attributable to owners of parent of ¥2,182 billion during the same period of the previous fiscal year.
Crowdfunding is usually used to fund projects by soliciting small amounts of money from large numbers of people. The practice came into being with the growth of the Internet and as far as can be determined has never been used by an international bank to raise capital. It is usually initiated by an entrepreneur who proposes an idea or project to be funded, then seeks like-minded individuals or groups to support the idea through small donations.
“Normally, raising capital to advance the Indonesian business is through borrowing,” the conglomerate said in a November 26 press release. “However, taking into account a variety of factors as a 6-8 percent interest rate for cost of funds and the time to gather the necessary funds from the date of the application to the borrowing, the company has decided to raise capital through the scheme because the interest rate for capital raised through crowdfunding in Japan will be lower and because capital can be raised more quickly.”
J Trust failed to acknowledge that more than US$192 million has been withdrawn from deposits at Bank J Trust since March of 2019 a decline of 17.1 percent, which may be indicative of a further run on the bank in the coming months.
J Trust is using Samurai Securities, a business partner primarily owned by JTrust CEO Nobuyoshi Fujisawa, which has been designated as the private placement contractor. With Samurai, J Trust’s subsidiary Nihon Hoshou began experimenting in May with crowdfunding jointly with Samuri Group, according to J Trust’s consolidated six months results released in September.
It is uncertain how successful the plan will be. Ryan Herling, an American official working in the J Trust finance department, said the crowdfunding plan had just got underway last week. He said he was unfamiliar with the crowdfunding experiment at Nihon Hoshou.
J Trust’s Indonesian operations have generated concerns virtually since the time it took over the scandal-scarred Bank Mutiara in Indonesia in 2014. The bank had been fashioned from the detritus of Bank Century Indonesia, which failed in 2008 with an estimated US$800 million unaccounted for, much of it believed to have been shifted overseas illegally by former owners. The bank was widely believed to be a slush fund for the Democratic Party, then headed by President Susilo Bambang Yudhoyono.
A year ago, Nobuyoshi Fujisawa, said J Trust would simply abandon its five-year campaign to turn around the Indonesia unit, J Trust Bank Indonesia, offering to sell off 40 percent of the bank and cede operational control to anybody who wants to take it over –“some very organized banks from Japan, China, South Korea and Taiwan, any nationality is okay, to run the bank,” he told a shareholder meeting on its second-quarter 2018 results in Tokyo on December 3, 2018. It appears there have been no takers.
Herling said he had no idea but would revert. At press time, there was no answer.
J Trust faces lawsuits in several countries over its operations and has run into financial difficulty with several of its units. It is one of a gaggle of defendants being sued in Mauritius and Singapore by Weston International Capital Ltd. and its subsidiaries over allegations that US$930 million was stolen by J Trust and other defendants in the theft, money laundering and fraud of distressed assets that were transferred to J Trust Investments. Weston’s crusade has since morphed into a massive lawsuit against 30 Indonesian government officials, Lebanese bankers and others allegedly including the newly named deputy minister of state-owned enterprises and former LPS CEO, Kartika Wirjowatmodjo.
As Asia Sentinel reported in a series of stories in 2017, although Bank Mutiara was ostensibly offered to 18 suitors, the sale appeared to be structured so that J Trust was the only bidder, with preferential, predetermined, no money down terms. While the Tokyo company supposedly agreed to pay US $368 million in cash, records at Indonesia’s Bank Deposit Insurance Corporation, Bank Central Indonesia and at J Trust itself show that J Trust actually paid only 6.8 percent of that amount, or US$24.14 million upfront, 33 days after the alleged sale date although the total was due on the date of the auction. From the records, it appears that several other government agencies were complicit in the transaction as well.
Whatever the details of the transaction, it is clear that the purchase was a disaster for J Trust and the Indonesian bank deposit insurance corporation, an ostensibly commercial operation that nonetheless is closely tied to the government. J Trust Indonesia has never turned a cash profit in any quarter since the fourth quarter of 2014.