May 26, 2000

Dow Jones Newswires

Indonesia Supreme Court Rules Bakrie Finance Bankrupt

JAKARTA -- The Indonesian Supreme Court has ruled PT Bakrie Finance Co. (P.BKF) bankrupt, reversing a series of lower-court rulings in favor of Bakrie that had dismayed private creditors and multilateral lenders to Indonesia.
In a verdict dated May 17, the Supreme Court said the conditions for insolvency had been met and ordered the commercial court to appoint receivers for Bakrie Finance, a unit of the diversified Bakrie group.
The blow to Bakrie, which owes over a billion dollars to the Indonesian government, marks a rare victory for creditors seeking to pursue corporate borrowers through the courts. The Indonesian corporate debt burden is viewed as a major drag on the economy.
"(The Supreme Court) accepted our application for bankruptcy," said Joni Aries Bangun, lawyer for the four South Korean banks who sued Bakrie in February to recover $13.5 million in unpaid syndicated loans.
That lawsuit was rejected by the commercial court, which ruled that the lenders represented one creditor as they represented syndicated loans. But the Supreme Court rejected this argument in its ruling, saying that there were sufficient creditors to sue Bakrie.
Shares of Bakrie Finance were suspended in March over the lawsuit. They last traded at 150 rupiah ($1=IDR8,498).
The February lawsuit was the second attempt by AB Capital Market (HK) Ltd., Cho Hung Leasing & Finance, Hammi Leasing & Finance (HK) Ltd. and KEB Leasing & Finance Ltd. to recover their loan.
Last August, the four banks and a fifth creditor, Hana Bank (Q.HMB), launched an identical bankruptcy petition that was thrown out on procedural grounds.
Hana dropped its action after reaching a separate debt deal with Bakrie Finance, according to lawyers for Bakrie.
Indonesia's commercial courts have been criticized by creditors including the Indonesian Bank Restructuring Agency who are seeking redress from distressed debtors. The court's willingness to throw out bankruptcy claims on spurious grounds has sparked accusations of corruption.
Tommy Bhail, a lawyer for Bakrie Finance, said Friday his client would probably seek a judicial review of the Supreme Court ruling.
He also said Bakrie is close to reaching agreement with other creditors on restructuring its debt and criticized the South Korean banks for opting to sue, rather than wait for debt negotiations to bear fruit.
"They may end up getting less," said Tommy, a partner in Fuady, Tommy, Aji Wijaya.
Lawyers for the four creditors said at the time of the latest lawsuit that debt talks with Bakrie had proven inconclusive.
Bakrie group Chairman Aburizal Bakrie said last month Bakrie's flagship company, Bakrie & Brothers (P.BBR), had backing from 85% of its mostly foreign creditors to restructure around $1.2 billion in debt.
He also had said he expected to strike a deal by June 30 with lenders to Bakrie Finance, which he said owes around $250 million to creditors, led by IBRA and the Asian Development Bank.
Bankers and people familiar with the Bakrie debt talks say the group has dragged its feet over the last two years in on-again off-again negotiations and has often issued optimistic public statements that were at odds with the view of those bankers involved in the talks.
Last December, IBRA named the Bakrie group as among its largest debtors with borrowings of IDR4.3 trillion, including IDR70 billion owed by Bakrie Finance.