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StanChart Schadenfreude as Tycoons Suffer

Comeuppance looms in Indonesia and India.
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Standard Chartered Plc has been treated worse than a doormat by Asia's carefree tycoons. So it should be a matter of some satisfaction for CEO Bill Winters, who inherited from the previous management a box full of dodgy exposure to the billionaire Ruia family in India and coal magnate Samin Tan in Indonesia, that the law is finally catching up with errant debtors.

Winters's Discontent

Lumpy loans to Indian and Indonesian businessmen by StanChart's previous management have soured; that's the biggest single challenge for the current CEO

Source: Bloomberg

The Ruias, whose Essar Steel India Ltd. offered to restructure a $413 million offshore loan only if Winters agreed to a 25-year moratorium on principal, are now facing the risk of losing control of the company after a change in India's bankruptcy code. Meanwhile in Indonesia, where a judge excluded StanChart from a creditor list last year and questioned the legality of the bank's $1 billion claim on Tan's Borneo Lumbung Energi & Metal Tbk, that company is fighting confiscation of its mining concession by the state.

Just deserts, Winters might say.

The last two and a half years haven't been a cakewalk. The hyper-aggressive lending practices of the team under CEO Peter Sands left Winters with a toxic credit culture.

The exposure to Samin Tan is a perfect example. It was a syndicated loan that StanChart arranged for Borneo Lumbung in 2011 to help it buy a 23.8 percent stake in London-listed Bumi Plc. When Reuters reported in October 2012 that the lender had pushed out its global head of leveraged finance syndication, letting him take the fall for the deal, StanChart had managed to sell only $230 million of its exposure to other creditors. It still had $770 million of risk on its books, and Bumi shares had lost almost 90 percent of their value in the preceding 17 months.

When Bumi Tumbled

Samin Tan took a $1 billion syndicated loan in 2011, arranged by Standard Chartered Plc, to buy 23.8 of the London-listed resources company

Source: Bloomberg

But why bother about Bumi going kaput? The bank had an iron-clad guarantee from Borneo's operating companies, PT Asmin Koalindo Tuhup and PT Borneo Mining Services. So imagine the surprise when, less than four years later, Asmin Koalindo -- Borneo Lumbung's largest mine -- sought protection from creditors.

StanChart tried to stake its claim against the mine for the loan taken by the parent, but was told by a Jakarta court that mining companies require government authorization before they can allow their assets to be used as collateral. In this instance, no such permission was obtained, a shocking lapse of due diligence on StanChart's part. The collateral therefore couldn't be enforced.

StanChart's humiliation, at a time when the bank was seeking to sell at least $4.4 billion of moth-eaten Asian assets, was another feather in the cap of Hotman Paris Hutapea, probably the only Indonesian lawyer to have been profiled by the New York Times for his widely acknowledged dexterity in saving troubled businessmen from foreign creditors.

Hutapea is known as Indonesian debtors' "nuclear option," for a fabled run that started with Asia Pulp & Paper Co.'s $14 billion default in 2001, Asia's worst to date.

For once, though, the missile seems to have misfired. According to a REDD Intelligence report on Tuesday, Tan is now scrambling to save Asmin Koalindo, whose work contract was canceled by the Indonesian government on Oct. 19. The resources ministry says the mining company shouldn't have guaranteed the $1 billion loan to Borneo, and because it did, it should be liquidated. A court will hear the firm's plea to set aside the order on Dec. 13, the REDD report adds.

This being Indonesia, it may be too early for Winters to revel in schadenfreude, though he's definitely earned the right to shut his office door and do a little jig.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Andy Mukherjee in Hong Kong at

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    Paul Sillitoe at

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