A US hedge fund is set to do battle with Indonesia’s Widjaja family in a New York courtroom on Monday in a case that echoes past clashes between foreign investors and the powerful south-east Asian business empire.
Two funds managed by New York-based Argentem Creek Partners are seeking damages from Widjaja-controlled mining group Berau Coal following the defaults of two bonds worth about $1bn.
The two funds, Pathfinder Strategic Credit and BC Investments, are seeking $165m in principal and interest on the bonds.
The jury trial, which kicks off on Monday and is expected to last several days, will determine the extent of the damages after a years-long restructuring process.
The case comes as concerns build over Indonesia’s economic and political environment, giving global institutions pause about investing in one of Asia’s largest emerging markets. Goldman Sachs and Raiffeisen Bank International are among a growing number of global institutions that have recently found themselves locked in court battles with local conglomerates.
The dispute with the Widjajas is the latest of several similar cases that have played out in courtrooms in New York, London and Singapore since the $13.9bn default of the family’s Asia Pulp & Paper in 2001 — the largest corporate default in emerging markets history. That case took several years to resolve but the Widjaja family, then led by patriarch Eka Tjipta Widjaja, managed to retain control of APP.
Widjaja died in January at the age of 98, having accrued a net worth of $9.3bn, according to the Bloomberg Billionaires Index, making him Indonesia’s fourth-richest man. Sinar Mas Group, which he founded in the 1960s, is one of south-east Asia’s largest conglomerates with holdings in palm oil, mining, infrastructure and paper production. His grandson, Fuganto, has taken the reins of the business empire, which controls Berau.
Legal advisers for Argentem have alleged that many of the tactics used by the family in the APP restructuring, such as changing the terms of payment without the approval of creditors, have also been employed in the case of Berau, which has been in restructuring since 2015.
“APP and defendants have demonstrated a pattern and practice in the past of using similar schemes to strip creditors of their legal rights through foreign courts,” said a complaint filed to the Supreme Court of the State of New York in 2017 on behalf of Pathfinder.
Proposed restructuring arrangements for Berau debt have included swapping outstanding notes with 12.5 per cent coupons for unsecured notes yielding 1 per cent, according to legal filings. Another arrangement proposed a 35 per cent haircut on the principal of one of the bonds. None has succeeded in resolving the situation.
“Since 2015, the Berau group has had a history of sporadic and unsuccessful restructuring attempts, including the opening of six separate court proceedings,” said a report from Reorg Research, a company that studies distressed debt situations. “Events leading up to the New York trial are only too familiar to industry professionals experienced doing business in south-east Asia.”
Berau and Sinar Mas did not respond to requests for comment on the matter. Berau has argued that a forensic accounting review of documents related to the case does not support the sum that the US funds are seeking to recover, according to court filings.
Berau has been connected with other high-profile, failed foreign ventures in Indonesia.
Financier Nat Rothschild once held a 17 per cent stake in Asia Resource Minerals, which counted Berau as one of its main assets. But financial irregularities surfaced in 2012 for the London-listed group, originally called Bumi, and Mr Rothschild ended his five-year venture in the country in 2015 by selling out of the business at a loss.
Source: Don Weinland / Financial Times
15 April 2019