Creditors to sue Danareksa in S'pore

Creditors to sue Danareksa in S'pore

Bloomberg, Singapore

Societe Generale SA and other creditors to an Indonesian company that owns the building that houses the nation's stock exchange said they will file suit in Singapore to try to recover their cash.

The lenders, including Lehman Brothers Holdings Inc., are seeking $180 million of principal and $60 million in outstanding interest from PT Danareksa Jakarta International, Richard Smith, president of PT Hudson Advisors Indonesia, said in an interview.

Smith, who represents Texas-based Lone Star Fund, said the group hopes a Singapore verdict will back its challenge in Indonesia against Danareksa's attempt to have the $180 million loan canceled. Danareksa claims an adviser steered it into an illegal loan agreement and applied to an Indonesian court to prevent creditors seizing its assets.

Danareksa creditors will be the latest group of investors frustrated with Indonesia's legal system to try to use a Singapore court decision to recoup funds or enforce agreements. Last month, Manulife Financial Corp., Canada's No. 2 insurer, won a ruling in Singapore freezing some assets of an Indonesian business family.

"The increase in legal action in Singapore reflects a frustration with the judicial and legal system in Indonesia," said James Castle, chairman of CastleAsia, a business consultant company in Jakarta. "It reaffirms what we have known since 1998, that we can't rely on Indonesian courts." Companies that plan to invest in Indonesia, he said, may demand better returns on their investment to compensate for the "risks."

Singapore and Hong Kong courts recently affirmed a Swiss arbitration tribunal decision brought by U.S.-owned power utility Karaha Bodas Co., owed about $275 million by Pertamina, Indonesia's state-owned oil company. The courts froze payments to Pertamina from Royal Dutch/Shell, Bank of America and others.

Danareksa's creditors plan to file the suit in Singapore because the loan document stipulates disputes must be heard in the island state, said Feizal Syahmenan, the group's Jakarta- based lawyer. A ruling in Singapore may also help them get access to any overseas assets of British Virgin Islands-based Eastglobe Ltd., which was set up in 1996 to borrow the money for Danareksa.

However, Danareksa's lawyer, Hotman Paris Hutapea, said a judgment in Singapore won't be enforceable.

"Any lawsuit in Singapore will be useless as the court decision there cannot be executed here in Indonesia," Hutapea said. "Danareksa's assets are in Indonesia and the debt collateral agreement was made using Indonesian laws."

Still, lawyers say a Singapore ruling may help creditors.

"Some foreign companies have obtained international arbitration awards against Indonesian companies and then sought to enforce them against the assets of the Indonesian company that are held outside Indonesia,' said Susan O'Rourke, a partner at Ashurst Morris Crisp in Singapore.

In Danareksa's initial loan agreement with creditors, the Indonesian company was to have made the first payment to creditors in 1998 and was also required to pay $10 million to $12 million from annual rental income. It started negotiations with creditors to reschedule the debt after it failed to make the initial payment, Syahmenan said.

Among the group of creditors, Societe General Bank is owed $8 million, the Indonesian Bank Restructuring Agency $18 million and Bank of Taiwan/Singapore branch $10 million.

Before negotiations were complete, Danareksa filed a complaint to cancel the $180 million debt. The court froze all assets pledged by the company. Syahmenan called the move an attempt to "deprive" creditors of their money.

The Jakarta Stock Exchange houses the World Bank and units of ABN Amro Holding NV and accounting firm Ernst & Young International, among other tenants.