Lewis & Peat insolvent on 'corporate abuse'
Lewis & Peat insolvent on 'corporate abuse'
SINGAPORE (Dow Jones): Singapore rubber trading company Lewis & Peat (Singapore) Pte Ltd. is insolvent because of "corporate structure abuse," a source close to the company told Dow Jones Newswires Wednesday.
Lewis & Peat's owners broke a golden rule when "they used short-term trade financing funds to fund long-term projects... in which they had vested interests," he said, speaking on condition of anonymity.
The projects are a rubber plantation in Liberia and a crumb rubber factory in Hainan, China, said the source.
"The reason (for the insolvency) is a balance sheet issue, not an income statement issue because the balance sheet was askew when the loan became due and the owners were unable to secure additional financing," he said.
Market speculation on Lewis & Peat's troubles had centered on how the profitable parts of the group couldn't bail out those that had incurred losses.
Global operations of Lewis & Peat group have been profitable for the last three to four years up until the time the loan, made by Lewis & Peat Distribution Pte. Ltd. in Singapore, was due Oct. 31, said the source.
He declined to reveal details of the loan.
Lewis & Peat's global operations include its branches in London and Singapore, as well as Ennar Bakrie in Connecticut, which is a partnership between Delaware-based Ennar Latex and Lewis & Peat Inc., said the source.
Ennar Latex owns 51 percent of Ennar Bakrie, which borrowed the money, he said.
Lewis & Peat is owned by Bakrie Sumatera Plantations, a division of Indonesian conglomerate Bakrie & Brothers.
Lewis & Peat's Singapore operations, which also include Lewis & Peat (Singapore) Pte. Ltd. and Lewis & Peat (Rubber) Holdings Pte. Ltd., have a net worth of US$5 million, said the source.
As all the companies cross-guarantee each other, Lewis & Peat's Singapore arm turned insolvent when the loan was due in October as funds were sucked into the long-term projects, he said.
"Lewis & Peat Singapore was fully able to pay all its debts with money to spare, but it was unable to pay the group's debt," he said.
The Singapore arm of Lewis & Peat was placed under the receivership of international business services firm Ernst & Young Tuesday. Its U.K. arm went into receivership last week.
Lewis & Peat's U.S. dry rubber operations are still profitable, said the source.
The Lewis & Peat group is independently financed by a syndicate group of banks, he added.
As such, it wouldn't be affected by the debt-for-equity swap that the Indonesian Bank Restructuring Agency helped to negotiate for the ailing Bakrie group, he said.
In December, major creditors of the group agreed on a debt- restructuring proposal that will enable them to recover half of $1.2 billion in debt. Separately, IBRA has said it is owed Rp 4.3 trillion from the Bakrie Group. That figure is based on an exchange rate of Rp 7,000 to the dollar.