Wednesday, November 11, 2015

Indonesia’s Bank Century Mess Goes Global Angry hedge fund seeks redress in international courts over missing funds

Angry hedge fund seeks redress in international courts over missing funds

Some of the last vestiges of one of Indonesia’s biggest scandals – the collapse of PT Bank Century TBK in 2008 and its subsequent US$710 million bailout – are playing out in a Singapore courtroom, where a Mauritius-based hedge fund is trying to find out what became of more than US$115 million that the fund claims as its own.

That is only part of the money that Weston International Capital’s subsidiary, Weston International Asset Recovery Co. Ltd., is seeking across the world. Weston specializes in buying up distressed debt. It is alleging that the Bank Century debt it bought has disappeared into a pretzel palace of companies spread from Japan to Singapore to Switzerland to Cyprus and to a number of other unknown countries.  Weston is trying to corner the new owners of Bank Century, a mysterious Japanese trust,  in courts across the world.

The story began in 2011, according to John Liegey, Weston’s CEO, when he had lunch with an official from the Netherlands-based ING Bank, who “told me a story about a US$215 million loan they made to a multi-millionaire British businessman named Rafat Rizvi, and that ING had collateral in a portfolio worth US$725 million that they were facing difficulties collecting.”

Weston spent six months doing due diligence and eventually took over the collection process for two convertible bonds issued by Bank Century, underwritten by the London-based Nomura International Plc plus over US$700 million of Nomura debt obligations with the idea that through litigation and other means, the debt could be converted into equity or cash as a recovery on the loan collateral. 

Unprecedented Fraud

“We looked at the portfolio and determined there were two Bank Century Convertible bonds we knew we could collect on, totaling US$80 million of defaulted debt,” Liegey said.  “But when we started unfolding the extent of the Bank Century fraud, it was beyond anything I have ever seen in 38 years in this business.”

Asked why he made the decision to buy into distressed debt in Indonesia, with its opaque courts and fungible financial system, Liegey, who founded the Weston International Capital subsidiary in Mauritius in 2011, replied: “My board of directors and shareholders ask me that almost every day.”

Weston has been suing in courts in Mauritius, Hong Kong, New York and most lately in Singapore to try to recover the money.  Weston did succeed in collecting over US$10 million cash and the rest in convertible bonds notes and Nomura-issued fund linked notes bringing the total to US$725 million in the Hong Kong courts in 2013.  The disposition of the securities is still being negotiated.

Weston and its wholly owned subsidiary, First Global Funds Ltd., believe much of the money still to be collected is still in the hands of Robert Tantular, the Bank Century beneficial owner who went to jail in 2008 and remains in prison today – although Indonesian prisons tend to be porous and well-wired inmates often are able to take extended leave.

Quintessential Indonesian Story

Bank Century is a quintessentially Indonesian story. The bank capsized in 2008 at the height of the global financial crisis, threatening the entire banking system to the point that then-Finance Minister Sri Mulyani and Boediono, then-Central Bank Governor, poured US$710 million into the effort to save the corruption-riddled financial institution, a move that cost Sri Mulyani her job as opponents of reform attacked her in the Indonesian legislature on charges of corruption. 

Much of the funds poured into the bank to save it consequently disappeared, spirited out to Indonesian and Singaporean banks.  The scandal largely brought economic and political reform efforts championed by former President Susilo Bambang Yudhoyono to a stop. Some US$350 million of Indonesian Government bailout money appears to be completely untraceable and is believed to be in the hands of some of Indonesia’s most prominent politicians.

Although 26 Bank Indonesia auditors were inside Bank Century during its dying days in 2008, led by Deputy Governor Budi Mulya, Tantular continued to siphon money out until the day the bank was expropriated, allegedly defrauding Bank Century shareholders and depositors. Budi Mulya ended up being sent to prison in 2014 for taking loans from Bank Century while regulating the Bank.

Sri Mulyani ended up leaving Indonesia to become Managing Director of the World Bank.  Both Boediono and Yudhoyono are said to have been ensnared in the scandal. Reports in local media hint that Boediono is still under investigation by the fearsome Corruption Eradication Commission (KPK) although no charges have ever been announced.   By John Berthelsen

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