A court case opened in Singapore last week, which is fast providing one of the most ironic and contentious tailpieces to the Asian financial crisis. Over the past nine years, there have been endless legal battles between indebted Asian companies and their creditors over debt restructuring agreements and asset disposals.

In this instance the situation reverses itself with a highly novel twist. Here one of the worldÆs leading global banks has been forced to take the stand and faces a possible loss of reputation not to mention the payment of damages if it loses. Two of IndonesiaÆs most prominent and controversial businessmen have accused it of acting in conspiracy with a third equally prominent local businessman and their own management team to sell a highly valuable asset they are determined to get back.

Deutsche, meanwhile, is counterclaiming for the full amount plus interest it is still owed on the loan to the two businessmen.

The disputed ownership of a 40% equity stake in IndonesiaÆs largest coal mine has been ongoing since the beginning of 2002 and is one of those colourful stories that has just about everything: a prized asset whose sale price has soared ten-fold in the space of four years; packs of lawyers and PR agencies fighting to put their clientÆs view across and muddy the reputation of their opponents; endless legal battles over what documentation Deutsche should disclose; threats of intimidation and harassment, not to mention a dispute between two of the Indonesian businessmen in question after they met in a Singapore coffee shop.

In some ways it is shaping up to be AsiaÆs own version of Jarndyce versus Jarndyce, the interminable law suit at the heart of Charles Dickens classic novel Bleak House.

Complicating the matter further is the fact that the Adaro coal mines were partially re-sold in 2005 via a groundbreaking leveraged acquisition that involves some of the worldÆs smartest private equity investors and hedge funds including Goldman Sachs, Farallon Capital Partners and SingaporeÆs GIC. Subsequent to this leveraged acquisition came a high yield bond deal, which was judged FinanceAsiaÆs bond deal of the year in 2005.

Why then is this court case so important if the two sides have been battling it out since 2002? What are the implications for the leveraged acquisition and bondholders of AdaroÆs $400 million 2010 bond deal if the plaintiff wins? What does this court case reveal about the way international banks operate in a country where the legal system has consistently been found wanting? What does it say about the way prominent local business groups conduct themselves and the ethics they uphold?

The plaintiff in the legal action is Beckett Pte Ltd, a Singapore registered entity ultimately owned by three groups via a vehicle called ASMEC. The three comprise: Raja Garuda Mas (RGM) headed by Indonesian pulp and paper tycoon Sukanto Tanoto; Tirtamas, headed by Hashim Djojohadikusumo an associate of disgraced president Suharto and former owner of cement producer Semen Cibinong and; Indopac, owned by Graeme Robertson, an Australian who took up Indonesian citizenship and was also President Director of Adaro itself.

The defendants are Deutsche Bank and PT Dianlia Setyamukti. The latter is an Indonesian company headed by Edwin Soeryadjaya, son of Astra founder William Soeryadjaya, his cousin TP Rachmat, a former Astra CEO and associates Benny Subianto and Garibaldi Boy Tohir, who owns the Republika newspaper.

At the heart of the dispute is a $100 million bridging loan extended by Deutsche Bank in October 1997 to a company called Asminco. This latter company owned a 15% stake in PT Adaro and took out the loan in order to fund a share purchase that increased its ownership to 40%.

The guarantor of the loan was Beckett, which owned Asminco and pledged all 40% of its shares as collateral. The complicated shareholding structure of Adaro at the time of the bridge loan is illustrated in table 1. The companies are henceforth often described as the Swabara group of companies owned by ASMEC.



In May 1998, Asminco defaulted on the loan. Given that it was at the height of the financial crisis, Deutsche Bank was unsurprisingly unable to provide take-out financing in the form of a syndicated loan or CB and Asminco did not re-pay it. Over the next three years a number of standstill agreements were concluded whereby Deutsche Bank did not foreclose on the loan and restructuring negotiations took place. The last of these standstill agreements expired in June 2001 with no restructuring agreement in place.

In February 2002, Deutsche informed Beckett it had foreclosed on the loan and sold the pledged shares. Fair enough you might think. This represents a rare instance where an international bank has actually been able to realize collateral in a country where it has proved extremely hard to uphold creditors rights in the aftermath of the financial crisis. Indeed some specialists believe this is the only instance where an international bank has been able to successfully foreclose on an asset like this in Indonesia.

One of the key issues muddying the case is which legal system should be applied. The syndicated loan was signed in Singapore and is subject to Singapore law and British common law, which is superimposed on top of it. The assets were in Indonesia and subject to Indonesian law. Deutsche says it adhered to both Singapore and Indonesian law. Beckett claims it broke Indonesian law and did not adhere to key tenets of common law