Bakrie Telecom debt ploy exposes new foreign investor pitfall in Indonesia
By Eveline Danubrata
JAKARTA (Reuters) - An Indonesian telecommunication company found a creative way to ensure that its debt restructuring was approved over some creditors' objections: it loaned itself money and then counted its own votes toward approving the plan.
The maneuver, which distressed debt investors said was unprecedented, was validated by a Jakarta court.
But investors who have sued PT Bakrie Telecom Tbk (BTEL.JK: Quote) and its subsidiaries in New York over a $380 million bond say they were barred from voting on the restructuring.
The bond's trustee Bank of New York Mellon said that violated both the terms of the bond contract and the law, without specifying which country's law, according to a letter to Bakrie Telecom seen by Reuters. (Graphic: link.reuters.com/fed24w)
The dispute has shaken investor sentiment in Indonesian corporate debt just as President Joko Widodo is pushing for more foreign investment and local companies are trying to raise capital to expand. Foreign direct investment in Indonesia totaled 307 trillion rupiah ($24.1 billion) in 2014, and Widodo has targeted a 12 percent increase this year.
Bakrie Telecom said the bondholders were not eligible to vote on the restructuring plan because they weren't direct creditors. The notes they bought were issued by a special purpose vehicle (SPV) in New York, which then lent the proceeds to Bakrie Telecom.
The SPV, representing $380 million of Bakrie Telecom's debt, cast its votes in favor of the restructuring plan, which was overwhelmingly approved on Dec. 8. Creditor claims that were recognized by the Jakarta court administrators totaled more than $770 million.
"They are now the issuer and the creditor," said Hal Hirsch, a lawyer representing a group of Bakrie Telecom investors who collectively own more than 25 percent of the bond that was set to mature in May. "They shake their own hands, they enter into their own agreement, and they have now effectively eviscerated any claim that the noteholders have." Continued...