JAKARTA/SINGAPORE, July 10 (Reuters) - Bank of New York Mellon (BK.N) and Indonesia's Bank Danamon (BDMN.JK) are being sued for $4 billion in Indonesia in a dispute between international bondholders and the owner of a shrimp firm, Indonesian court documents show.
The dispute highlights the difficulties investors often face in Indonesia in enforcing their rights and comes as at a sensitive time. Many foreign investors have been increasing their exposure to the country on the back of strong growth and expectations of continued political stability following the re-election of President Susilo Bambang Yudhoyono this week.
The case involves a group of international investors who bought a $200 million bond issue, and the banks who acted as the trustee and security agent for the debt. The bonds were issued in 2007 by Red Dragon, controlled by Thailand's powerful Jiaravanon family.
The dispute has pitted the investors and banks against Red Dragon and three other firms controlled by the Jiaravanon family, all of which own stakes in Indonesian shrimp exporter PT Central Proteina Prima (CP Prima) (CPRO.JK), according to stock exchange records dating from the time of the bond issue.
The other three companies -- Regent Central International, Charm Easy and PT Surya Hidup Satwa (SHS) -- jointly backed Red Dragon's bond by pledging their shares in CP Prima to back the issuance. Red Dragon and these companies together controlled 70.3 percent of CP Prima, according to court documents seen by Reuters.
The dispute escalated last year when the value of CP Prima's shares and bonds plunged. Attempts to restructure the debt failed and bond holders ordered Bank of New York Mellon, the trustee, and PT Bank Danamon, the security agent, to transfer some of the shares held as collateral to the bondholders, sparking several lawsuits.
According to a press statement issued by the bondholders' representative, about 12 percent of the shares in CP Prima have been transferred and the transfer of the remaining 58 percent has begun.
In the latest twist to the saga, the four CP Prima shareholders have filed lawsuits in the central Jakarta district court against Bank of New York Mellon and Bank Danamon.
Each company claimed $1 billion in damages for transferring some of the shares held as collateral to Red Dragon bondholders, bringing the total compensation to $4 billion.
In court documents seen by Reuters, the four companies said both Bank of New York Mellon and Danamon "have committed torts through the execution of shares in a manner that is against the law". Fransiska Oei, Danamon director, said in a statement to Reuters that Danamon had received lawsuits from three parties: Red Dragon Group Pte Ltd, PT Surya Hidup Satwa and Regent Central International Limited.
"Danamon will study the lawsuits and in time will deliver its right of reply to the court. Related to the lawsuits, we need to convey that Danamon has acted in accordance to its roles and responsibility as the security agent which was appointed by Bank of New York Mellon," she said in the statement.
In June 2007, Red Dragon, a Singapore special purpose vehicle controlled by the Jiaravanon family, issued the $200 million, 2 percent secured exchangeable bonds due 2010 to a group of international investors.
At the time, Red Dragon owned 11.9 percent of CP Prima and pledged that CP Prima stake against the bond. Three other entities connected to the Jiaravanon family also pledged CP Prima shares for the bond offering.
The entities -- SHS, Regent Central, and Charm Easy -- owned a combined 58.4 percent of CP Prima, so the total amount of protection the group was offering on the bond equaled 70.3 percent, according to the court legal documents seen by Reuters.
CP Prima's stock went from 760 rupiah per share in July 2007 to 160 rupiah in Sept. 2008, knocking down the value of the bonds in the process.
What incensed the bondholders was an initiative late last year to embark on a rights offering, or an issue of new stock to existing shareholders that raises money for the company.
Bondholders argued that the rights issue would dilute CP Prima's shareholdings and therefore dilute protection against the Red Dragon bond.
In April 2009, the bondholders fought back, instructing the trustee to accelerate bond payments and to commence enforcement actions over the offshore collateral by seizing funds held by Red Dragon in offshore bank accounts.
Bank of New York declined to comment for the story.
Negotiations to restructure the bonds failed, and on May 12, the lawsuits began to fly.
Red Dragon and Pertiwi also filed claims in England against Bank of New York as Trustee and Bank Danamon as Security Agent -- the two entities acting on behalf of the bondholders, another legal document seen by Reuters showed.
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