Case Study Of Adaro : Syndicated Loan "the Organized Conspiracy And Contravention Of Corporate Accountability "

SYNDICATED THE

ORGANIZED

LOAN

CONSPIRACY

AND CONTRAVENTION OF CORPORATE ACCOUNTABILITY

Abstract This case study discussed about the endless legal battles between indebted Asian companies lead by Beckett Pte Ltd and their creditors over debt restructuring agreements and asset disposals, which latter found the fact of a shocking organized conspiracy within Beckett’s group management on the assets disposals process. Beckett Pte Ltd, a Singapore registered entity as the plaintiff who took legal action to confront the defendants, Deutsche Bank (DB) and PT Dianlia Setya Mukti. The main purpose of this case study is so the readers could learn about what happened, what when wrong and how is it possibly could go worst. There are principles of good corporate governance aspects that need to be analyzed by the reader. This case study is not intended to judge whether particular character in this case is wrong nor to support any of character discussed in this case. After finished reading this case study, reader are expected to able to analyze and recognize the dilemma arose, then gather their knowledge to compare it with what should the character have done to implement particular principles of a good corporate governance. All information and data gathered to construct the study case are based on internet research on articles and what has been written by media before. This writings should provide enough information for the readers to be challenged and experience the dilemma told on those particular circumstances. Introduction Over the past several years since 1998, there have been endless legal battles between indebted Asian companies, Beckett Pte Ltd and their creditors, Deutsche Bank, over debt restructuring agreements and asset disposals. Beckett are yet to be ready to find out about the conspiracy inside their own management group involved with this conflict. Here, Deutsche Bank, one of the world’s leading global banks has been forced to take the stand and faces a possible loss of reputation not to mention the payment of damages if it loses. Two of Indonesia’s most prominent and controversial businessmen who lead the indebt companies have accused Deutsche Bank of acting in conspiracy with a third local company and their own management team to sell a highly valuable asset of their own. Beckett are determined to get them back. Deutsche Bank, meanwhile, is striving to claim the full amount plus interest that is still owed by Beckett’s.

Took place as the plaintiff in the legal action is Beckett Pte Ltd, a Singapore registered company owned by three groups via a group called ASMEC. The three apparently comprise: 1. Raja Garuda Mas (RGM) headed by Indonesian pulp and paper tycoon Sukanto Tanoto; 2. Tirtamas, headed by Hashim Djojohadikusumo an associate of former indonesian

president Suharto and; 3. Indopac, owned by Graeme Robertson, an Australian who took up Indonesian citizenship and was also the President of Adaro (Adaro is included as the collateral of the loan agreement). The defendants are Deutsche Bank and PT Dianlia Setyamukti. The defaulted $100 million loan extended by Deutsche Bank in October 1997 to a company called Asminco. This company owned a 15% stake in PT Adaro and took out the loan in order to complete their 40% increased ownership. The guarantor of the loan was Beckett Pte Ltd, which owned Asminco and put all 40% of its shares as the collateral. The complicated shareholding structure of Adaro at the time of the loan is illustrated in figure 1.

Figure 1

Adaro 40% share is at stake!

100 %

Sukanto tanotoGuarantor is astounded, what he feared for three years before has finally comes to happen. He knew that this will happen, and he didn’t like it. Sukanto Tanoto owns 29,2% of Beckett Pte Ltd share. The 74,2 parent company of troubled corporation, PT ASMINCO, which has defaulted their syndicated % loaned to Deutsche Bank. It’s

99,9 40%%

Deutsche Bank (Wolfgang Topp) 100 Million

Debtor

been three years since the subsidiary has defaulted the loan and there still no agreement to Collateral restructure the loan nor to define how is it going to be settled by both company. Meanwhile, at the other side, Deutsche Bank managing director, Wolfgang Topp has declared that their side are going to do what they should have done based on their initial agreement. They have sold the 40% share of PT Adaro to PT Dianlia. They claimed they have the right for it and they have done it within the corridor of law. In his affidavit he commented about the share pledge agreement which states : “If an event of default has occurred, the bank may, without demand for payment or notice of intention and without obtaining any decree, order or authorization of any court, all of which the shareholder hereby and irrevocably and unconditionally waives, immediately or at any other times as the bank shall in its sole discretion determine sell all or any part of the pledged collateral at a public sale or privately at such price and upon such terms and conditions as the bank shall in its sole discretion determine.”

Negotiation breakdown Six months earlier they have met on two times meeting to decide further actions that needs to be taken to solve the conflict. Beckett’s spoke person claimed that Asminco’s respective shareholders would not agree to any loan restructuring. “It would create a direct financial burden on Adaro’s cash flow” said Beckett’s representatives, Arthur Ling. Meanwhile, Topp has appointed Delloitte as an independent financial advisor to analyze the future cash flow of Asminco. As Delloite comes to conclusion, they reported that Asminco will not be able to complete their obligation. He concluded that Asminco’s ability to complete the loan payment was weak and he was not confident that Asminco’s side will be able to land any third party investment as promised before. Arthur even start to provoke and worsened the circumstance, he stated that they were not willing to give up their shares even they were not able to complete their loan deal. “Deutsche Bank could try to take action on the security if they wish” said Arthur. Given out the chance, Deutsche Bank trough it’s spoke person, Topp, were outraged and stated that they were prepared to do what necessary “at this point, I told all present that in view of the position taken by shareholders, the bank would henceforth take whatever necessary steps to enforce its legal rights!”

Suspicious execution Five months later Deutsche Bank took their action. They sold the 40% share of the collateral object (Adaro) to PT Dianlia for $46 million. They equivocate of that 46 cents on a dollar was

good price given the average recovery price for the troubling debts that was valued around 24 cents. This execution apparently has caused controversy. Beckett’s people believe that the execution is illegal and contradicted with Indonesian legal system, where there is no such private selling of the pledged collateral is allowed. On the other side, Deutsche bank claimed that the execution of the pledged collateral was legit and it is subject to Singapore legal system as the agreement was made and signed in Singapore. Beckett insisted that they should follow Indonesian law system as the troubled company (Adaro) is registered and located in Indonesia. Beckett also questioning the execution as it was signed at November 2001 whereas the Indonesian court grant the execution latter at February 2002. There are too many things that did not make sense to the Beckett’s. Deutsche Bank refused to disclose the amount of the sales and to whom the shares was sold before latter was found that the shares was sold to PT Dianlia for the amount of $ 46 million, which in Beckett’s perspective, the price were too low. Beckett’s is starting to smell a suspicion in this transaction. The amount of the transaction did not make any sense and if Deutsche Bank are going to get back their money, the price is should taken much higher than that. Beckett claimed that they were should be also attending the execution because they were the guarantor of the loan deal, and revealed their suspicion on the event that their group management has acted in conspiracy with Deutsche Bank and PT Dianlia to buy the shares. To back up this statement Beckett the finally manage to revealed the document that latter shown that there were conspiracy to prevent the details of the execution for being disclosed to public, mainly to Beckett. Conspiracy finally revealed “At its core, the case is relatively straightforward. It will be amply demonstrated from the evidence that Deutsche Bank … collaborated with a rival faction of the borrower to sell the pledged shares at an undervalue to a “borrower related entity” to the prejudice of the guarantor and pledgor of the shares, Beckett.” Stated Chong, Beckett’s lawyer. The company group share holders, Sukanto Tanoto and Hashim Djojokusumo begins to speak out and stated that his group actually still have their ability to completed the loan deal and there were no such of transaction is necessary. “we were not fully aware of this at the time because the management team was withholding financial information from us! and we had not been taking part in the restructuring negotiations until towards the end”

After doing private investigation, beckett then manage to show a number of correspondence between Indra Aman( a member of the management group / Adaro) and Deutsche Bank that points the evidence of conspiracy. Steven Chong, Beckett’s lawyer stated that Indra Aman organized the entire event of conspiracy. “He drafted a total of 10 letters pursuant to the conspiracy script detailing each step to be taken by Deutsche Bank and Asminco to give the

misleading impression that the sale was above board. Indra Aman even drafted the letter of deman for Deutsche Bank to send out to Asminco to trigger the default. Interestingly the script ended with an instruction to erase and destroy all files and correspondence on the transaction at the latest one day before completion” *********

Question for discussion 1. What about the transparency in the event of the sales of collateral pledged share of

Adaro by Deutsche Bank, do you think Adaro have done it best to implement good corporate accountability for the sake of their shareholders interest?

Arya Hidayat