Sumitomo rethinks Indonesian investment after legal spat

Sumitomo rethinks Indonesian investment after legal spat

Dow Jones, Jakarta

Japan's Sumitomo Corp. said it may "rethink" its commitment to
Indonesia if it loses a court battle that threatens to bankrupt
its local joint venture chemicals business.

Sumitomo said in a statement that Indonesia's weak bankruptcy
laws have allowed a dispute over the company, PT Satomo Indovyl
Monomer, to end up in a local court rather than going for
arbitration in Switzerland in accordance with the joint venture
agreement.

According to Sumitomo, the South Jakarta District Court ruled
this year that Satomo be liquidated. The Japanese company said
its joint venture partner - PT Sulfindo Adiusaha, which it claims
is in turn owned by Durability Enterprises, a company linked to
Hong Kong-based Emperor Group - called for the bankruptcy ruling
after a commercial dispute with Sumitomo.

Christina Ng, a spokeswoman for Emperor Group in Hong Kong,
said the firm has no shareholding nor commercial relationship
with Sulfindo and Durability. The Hong Kong company offered no
further comment on the issue.

But Indonesian Bank Restructuring Agency spokesman, Raymond
van Beekum, said IBRA sold Sulfindo to Durability in 2001.
Durability said at the time it was owned by Emperor Group, van
Beekum said.

Sulfindo spokesman Nugroho, who is based at the company's
factory in a town near Jakarta, said the joint venture owes it
more than US$10 million. Sulfindo wants to end the partnership
with Sumitomo and recoup that debt through liquidating the joint
venture's assets, he added.

The Supreme Court overturned the bankruptcy ruling against the
joint venture on appeal from Sumitomo, which claims it doesn't
owe anything to Sulfindo. But Sulfindo is appealing that ruling
at the Supreme Court and a decision is due soon, Nugroho said.

"We are now waiting for the Supreme Court's decision in the
case," he told Dow Jones Newswires.

Sulfindo doesn't acknowledge the need to go to international
arbitration, Nugroho said. But Sumitomo claims the joint venture
agreement which set up Satomo stipulates that any commercial
disputes should be settled by a panel of experts in Geneva.

Indonesia's image among foreign investors has taken a dive in
recent years as local courts failed to enforce decisions by
international arbitration rulings in commercial disputes. Due to
concerns about corruption in Indonesia's legal system, foreign
investors say they are unwilling to put money here without some
guarantee of arbitration overseas in case of disputes.

"We are having to rethink our commitment to the country," said
Makoto Honjo, head of acquisitions at Sumitomo's chemical
business unit. "If Sulfindo is allowed to get away with this, it
will only encourage others to abuse the bankruptcy process," he
added.

Sumitomo says it has invested more than $300 million in 74
ventures in Indonesia ranging from infrastructure to natural
resources.