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.