U.S. investors seek Tri Polyta funds

U.S. investors seek Tri Polyta funds

Tom Wright, Dow Jones, Jakarta

U.S. creditors of an Indonesian company linked to former president Suharto, armed with a U.S. court ruling, will try next week to use this country's judicial system to get their money back.

But it may be a tough fight for the creditors, led by OCM Opportunities Fund LLP, to recover money from PT Tri Polyta Indonesia (PTPIE) because Indonesian courts are increasingly refusing to enforce foreign judgments.

The Delaware-based private-equity concern and other creditors will file a bankruptcy suit Monday with the Jakarta Commercial Court, seeking foreclosure on the petrochemical company's assets, said Rahmat Bastian, a lawyer representing the creditors.

They aren't optimistic about winning in the Commercial Court and are expecting to take their fight to Indonesia's Supreme Court, the lawyer said.

Tri Polyta, a company in which Suharto's son Bambang Trihatmodjo was a former partner, stopped paying interest on $185 million worth of bonds four years ago, the lawyer said.

The creditors got a U.S. federal court order in April saying Tri Polyta, Indonesia's largest maker of polypropylene resins used in packaging and textiles, must repay the principal and default interest. But the company countered, persuading an Indonesian district court that month to block any foreclosure action, said company lawyer, Hotman Paris Hutapea.

Foreign creditors must understand Indonesia is going through tough economic times and shouldn't expect full repayment, Hotman said. "They are very greedy."

Foreigners have recently returned to Indonesia's stock market, helping make it one of the world's best performers this year, partly because of perceived political stability under President Megawati Sukarnoputri. But overseas investors still consider this country's legal system unpredictable and often try to steer clear of it.

Failure to keep to contracts is a major deterrent to potential investors, analysts say. So investors often set up clauses in lending contracts that allow for disputes to be heard by foreign courts.

That's why Tri Polytra's creditors were able to get the ruling from the U.S. District Court in New York. The creditors say Tri Polyta owes around US$260 million and that the bond indenture allows foreclosure on the company's assets in lieu of repayment.

But as with several other recent cases, the local debtors were able to block the overseas judgments locally, leaving creditors with few options but to battle the decisions here as well.

Tri Polyta says the original bond agreement was invalid under Indonesian law and expects the district court to rule on this in September, Hotman said.

The creditors' action Monday in the Commercial Court will be an attempt to forestall Tri Polyta's legal strategy, lawyers say. "We don't have any other choice as the company acted in bad faith," Rahmat said.

The Commercial Court has a history of ruling against foreign companies.

In one case last year, the court ruled the local unit of Canada's Manulife Financial Corp. (MFC) bankrupt even tough it was profitable. The Supreme Court overruled that decision amid international pressure.

Also last year, an Indonesian court nullified an arbitration ruling by a Swiss panel ordering state-own oil and gas company Pertamina to pay $261.1 million to Karaha Bodas Co., a partnership controlled by Florida-based FPL Group Inc. (FPL) and Caithness Energy LLC of New York.

In happier days, Tri Polyta had no trouble raising money, in part due to its close links to the government. It sold the $185 million in seven-year bonds in November 1996 to fund expansion of a polypropylene factory in Serang, near Jakarta. The bond indenture appointed Bank of New York as trustee and included an agreement that any dispute should be settled there, according to Rahmat.

In 1999, after Asia's financial crisis and Suharto's ouster amid pro-democracy protests, Tri Polyta stopped repaying its debt and scaled back production. OCM Opportunities Fund has bought up about $104 million of the debt in recent years, its lawyers say, with other distressed-debt funds holding the remainder.

Prajogo Pangestu, the founder of Barito Group and a shareholder in the debt-laden petrochemical company PT Chandra Asri, owns 46.46 percent stake in Tri Polyta. He bought the stake in stages in 2001 and 2002 from Tri Polyta's original shareholders, including Suharto's son Bambang.