Friday, June 30, 2017

Japanese Firm Got Almost a Free Indonesian Bank - Outgoing government didn’t want incoming Jokowi government to see what was in Bank Mutiara

Japanese Firm Got Almost a Free Indonesian Bank - Outgoing government didn’t want incoming Jokowi government to see what was in Bank Mutiara

A scandal-plagued Indonesian bank, now in the hands of a controversial Japanese company, was sold to its new owners for virtually nothing, adding another layer of intrigue to the long saga of what was once the notorious Bank Century.  It is now doing business as PT Bank J Trust Indonesia TBK. 

The result, since Century’s founding in 1989, is the disappearance of the equivalent of more than US$1 billion from Indonesia’s treasury – including the equivalent of US$245.2 million paid and forgiven to J Trust to take over the bank, with the potential for criminal action against officials all the way up to the top of the government.

Bank Century virtually collapsed almost nine years ago, its demise and bailout ensnaring cabinet ministers, with hundreds of millions of dollars stolen and moved overseas, and leading to questions of impropriety directed against the government and Yudhoyono.

Clouds over the operation

When it became Bank Mutiara in 2009, the clouds did not lift. By then it was under the administration of the Indonesian Bank Insurance Corporation, a quasi-autonomous government organization more widely known by its Indonesian acronym LPS. Indonesian sources say concern was growing among Yudhoyono’s allies about the rat’s nest that would be found inside Bank Mutiara once a new administration came into office, and they were determined to get it off the books of the agency before President Joko Widodo took office.

The LPS went in search of buyers in 2014. Although it was offered to 18 would-be purchasers, it found few takers and the bank was eventually sold Tokyo-based J Trust Co. in a transaction that appears to have been anything but arms-length. The sale in fact appeared to be structured so that J Trust was the only bidder, with preferential, pre-determined terms. The Japanese concern renamed it Bank J Trust after supposedly agreeing to pay US$368.0 million in cash under Indonesian Financial Services Authority law.

But the records make it look like J Trust actually paid only 6.8 percent of that amount, or US$24.14 million upfront, and that was 33 days after the alleged sale date. According to an exhaustive examination of both J Trust’s books and LPS records, it appears that the LPS, Bank Sentral Republik Indonesia – the central bank – and several other government agencies were complicit in the transaction.  

CEO with a checkered past

J Trust Group is a Japanese financial services provider headed by Nobuyoshi Fujisawa, who, among other things, had been an executive with various subsidiaries of Livedoor, a Japanese Internet service provider that went belly-up spectacularly in 2006 amid charges of market manipulation, securities fraud and false accounting procedures.

According to records in Japan, Fujisawa was the President of Livedoor Credit Co Ltd, Livedoor Services Co, Livedoor Factoring Co Ltd and Kazaka Services, now Partir Services Ltd.  J Trust purportedly specialized in buying up distressed bankrupt concerns like Takefuji Corp., another consumer lending company that went under in 2010 with the equivalent of US$5.1 billion in liabilities. J Trust has emerged as a rebranded Southeast Asian vulture fund.

The Tokyo-based group shares a bewildering pretzel palace of cross shareholdings with APF Financial, Showa Holdings Ltd, Wedge Holdings Co., Ltd, Group Lease PCL, PT Bank J Trust Indonesia TBK and the Thailand-based Group Lease.  Mitsujo Konoshita, the chairman and chief executive of Group Lease was recently fined the astonishing equivalent of US$37.1 million by Japan’s financial regulator for stock manipulation of Wedge Holding shares in 2013.

US Commerce chief among shareholders

Other major shareholders include Taiyo Pacific Funds, Invesco, the California Public Employees Retirement System (CalPERS), Saikyo Bank and WL Ross CG Partners. The W L Ross is Wilbur Ross, the secretary of commerce in the Trump administration.

As Asia Sentinel reported on April 10, it was publicly announced by the Indonesian government that J Trust had bought Bank Mutiara and paid the equivalent of US$368 million for 99.996 percent of it. But no mention of cash payment of that amount has appeared in any of J Trust’s financial statements over the past three years. Under Financial Services Authority and LPS law, J Trust was required to pay the US$368 million in cash in full at the time of purchase. However, LPS records show that J Trust paid only the equivalent of US$24.14 million down with a promise to cover future losses for a set period of time.

Bank Indonesia then arranged for a sharia loan promissory note through the Deposit Insurance Corporation for the remainder.  In 2016, according to LPS records, the insurance corporation wrote down Rp3.065 trillion (US$230.65 million) on the sharia promissory note. That means the note was never paid and J Trust was virtually given Bank Mutiara in exchange for covering the flailing bank’s losses from Nov. 20, 2014 onward, up to a capped amount within three to five years.  Those losses amounted to US$151.8 million as of December 31, 2016.

No record of the payment

There is no record, either in J Trust’s annual reports, or in the LPS’s records, that the sharia loan or the upfront US$368 Conditional Share Purchase Agreement (“CPSA”) purchase price proceeds have ever been paid by J Trust in cash.  Over a period of weeks, Asia Sentinel has asked the LPS in a series of emails for the details of the sale, without ever receiving an adequate explanation of what happened. After a series of emails that produced no substantive responses, the editors of Asia Sentinel decided to go ahead with the story. 

Asia Sentinel has also repeatedly sought to get J Trust to provide details of its payment for the bank. After three emails to J Trust’s international public relations representative Keiko Nishihara, J Trust’s lawyers Nishimura and Asahi of Tokyo delivered an unusual response:

“Your inquiries in your said emails are pertaining to matters that may relate to the pending disputes in which J Trust has been involved; therefore, J Trust has no intention to answer your inquiries regarding any details.”

That was followed up on May 26 with a letter from J Trust’s Hong Kong-based lawyers Linklaters threatening libel action.

Subsequent emails to Linklaters as well as, Nishimura, Asahi and the LPS have been met with silence.  There has also been no response from J Trust or the LPS on when the Conditional Share Purchase Agreement with J Trust expires.  

In the meantime, J Trust Group has been hemorrhaging cash flow, pouring US$217 million into what is now Bank J Trust Indonesia, continuing into March 2017.  That is after allegedly agreeing on paper to pay what was said to be the highest multiple on a book value basis in Southeast Asian history for a bank in a non-competitive and non-transparent and seemingly fraudulent LPS sale process.

Major paper loss

The cumulative book value write-down for J Trust indicates a 65.2 percent paper loss on investment so far.  That raises questions why J Trust bought the Bank in the first place. The silence by the group and Fujisawa leaves no answers to that or a long string of other questions.

For instance, in its March 31, 2017 Annual Report, J Trust says that in October 2016, the board of directors passed a resolution to acquire the shares of DH Savings Bank, based in Busan, South Korea.

“After six months since we entered into a share acquisition agreement, the (sic. South Korean) Financial Authority was still not ready to accept the company’s application for becoming a major shareholder. The company accordingly cancelled the agreement and aborted the share acquisition plan.”

No record of Korean acquisition attempt

However, as Asia Sentinel reported on May 4, a spokeswoman for South Korea’s financial authority said the agency had no record of an application to take over DH Savings, and DH Savings refused any comment.  That raises the question whether the whole DH Savings exercise was merely an attempt at window-dressing to inflate J Trust’s less than impressive earnings and operating losses from FY2014 through FY2017.

Then there is the matter of J Trust’s accounting standards. In the same report announcing the mysterious cancellation of the DH Savings transaction, J Trust announced it was switching from the Japan Generally Accepted Accounting Principles, or J-GAAP, to International Financial Standards, or IFRS, which is generally looked upon as a sensible move because it standardizes J Trust’s accounting with a single set of standards developed and maintained by the International Accounting Standards Board on a globally consistent basis.

But fortuitously for J Trust, switching over to IFRS eliminated the three-month timing difference in account closing for its two Indonesian subsidies, Bank JTrust Indonesia and J Trust Investments, reflecting 15 months of operating revenue rather than 12 months and increasing operating revenue by 25 percent. It has also substantiated J Trust’s attempts to write off massive goodwill numbers over an extended period. Shades of Takefuji resound.

According to its adjusted Fiscal Year 2017 reports, J Trust lost the equivalent of another US$13 million on its Thailand-based Group Lease motorcycle lending operation after a US$11.5 million gain on the sale of shares of the Indonesia-based Bank Mayapada. Along with previous losses, Group Lease has an implied total stock price loss of 38.4 percent on J Trust’s US$220 million investment in Group Lease since May of 2015.

Accounting legerdemain documents profit

 Nonetheless, through a series of accounting adjustments, Group Lease managed to document US$ 28.98 million in net income for 2016, or did until the global accounting firm, E&Y, qualified its FY2016 accounts, causing its market capitalization on the Stock Exchange of Thailand to nosedive by US$2.2. billion in 90 days, from THB69.75 per share to THB12.40, a decline of 82.22 percent. In its own non-audited reports, J Trust said the qualifications “are not material” but its share price along with Wedge Holdings, Showa Holdings and APF Holdings has plummeted since February 14 in a Japanese version of a Valentine’s Day massacre.

None of this has managed to bolster J Trust’s stock price on the Tokyo Stock Exchange, falling from ¥14000 on Feb.16 to ¥809 on June 9, a 42.2 percent drop and the biggest including 2013, when the shares fell by 53.8 percent after J Trust’s ¥97 billion rights offering. The J Trust saga continues through today as Fujisawa’s accountants continue to adjust book losses.

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