Bahana in trouble collecting debts

Bahana in trouble collecting debts

Rob Delaney and Aloysius Unditu, Bloomberg, Jakarta

PT Bahana Pembinaan Usaha Indonesia, a state-owned holding company that is late repaying US$400 million, is having trouble collecting debts of its own.

In 1997, Bahana lent $47 million to Festival Company Inc., a British Virgin Islands-registered company owned by timber tycoon Prajogo Pangestu, said Bahana officials who didn't want to be identified.

Now Prajogo says he won't honor a guarantee on the loan, used to help buy a stake in a Philippine phone operator.

I'm "not a shareholder nor a beneficial owner of Festival Company Inc.," he said in a letter to Bahana dated Jan. 29 that was seen by Bloomberg News.

"Since the personal guarantee is no longer legally binding, all obligations and rights attached to the guarantee automatically drop."

The difficulties in resolving Indonesia's overdue debt, where a weak legal system is discouraging investors, are making it harder for the nation to pull out of its worst economic crisis in decades. Indonesia has about $60 billion in overdue foreign corporate debt still to be restructured.

In January, Bahana's debtors paid a quarter of the $400 million they owed the company and that had been due in December. The company used the funds to make payment on some of its own foreign-currency debt, and Bahana's debtors then negotiated a six-month schedule to repay the remaining $300 million.

The Festival debt wasn't part of the amount repaid, and the restructuring agreement was hammered out before Prajogo withdrew the guarantee, possibly threatening the revamp accord.

Ignasius Jonan, Bahana's president director, declined to comment. Prajogo wasn't available for comment.

Complicating Bahana's efforts to recover the debt, Festival directors Loeki S. Putera and Jansen Wiraatmaja resigned on Jan. 29, the same day Prajogo denied he had any ties to the company, according to letters obtained by Bloomberg.

Neither man could be reached for comment.

Festival's office is in Wisma Barito Pacific, Prajogo's headquarters close to Jakarta's central business district.

Prajogo is president commissioner of PT Barito Pacific Timber, which is fighting a petition by bondholders seeking its bankruptcy after Indonesia's largest plywood maker missed a bond payment on Jan. 10.

Prajogo owns 7.95 percent of Barito Pacific.

Proving the real owner of Festival will be difficult. Under British Virgin Islands law, the identity of shareholders is protected. Bahana will need an order from one of the tax haven's courts to get that information.

Just what Bahana was doing lending money to offshore companies is something Indonesian authorities may be asking Sudjiono Timan, president director of the company from 1993 until February last year.

Under Indonesian law, state-owned non-bank companies like Bahana are not allowed to extend loans.

Bahana is a holding company that doesn't have any real operations of its own. It controls three financial units, PT Bahana Securities, fund management house PT Bahana TCW Management and venture capital company PT Bahana Artha Ventura.

PT Bahana Securities arranged the sale of Rp 2.2 trillion of bonds in the past two years for companies such as Indonesia's largest cement maker, PT Semen Gresik and Indofood Sukses Makmur, the world's largest maker of instant noodles.

Sudjiono is under house arrest and faces 20 years in jail for his alleged role in Bahana's lending $210 million to companies including Festival.

"The problem with Bahana is abuse by its previous owners," said Lin Che Wei, director of Socgen-Crosby Securities.