Standard Chartered, struggling to recoup a US$1 billion (S$1.35 billion) loan extended to one of Indonesia's richest men, has hit fresh trouble after a Jakarta court excluded it from a key creditor list and raised doubts over the validity of the underlying deal.
Standard Chartered is recovering from heavy losses from commodities loans granted over the boom years. Many of the loans soured as prices tumbled to historic lows. In 2015, the lender sank to its first loss in almost three decades.
The US$1 billion loan was made to mining tycoon Samin Tan's coal firm, Borneo Lumbung Energi & Metal Tbk and was one of the bank's largest exposures to a single borrower, sources at the lender said. Backed by Tan's coal assets, it was approved in 2011, helping Tan buy out a rival billionaire's stake in the now defunct miner, Bumi Plc.
That year, it was the single-largest underwritten loan by any bank in Asia, according to Thomson Reuters data.
Standard Chartered has made a push to reclaim the Tan cash, under a new boss who is trying to repair the bank's balance sheet and claw back bad debts. As of September, Standard Chartered was owed more than US$700 million, due by 2019.
It had sought to join the list of creditors after Borneo's largest mine suspended repayments and sought protection.
But its demand for repayment was thrown out last week by the Jakarta court administering the debt plan for the mine, Asmin Koalindo Tuhup (AKT). The court said it was unclear the Standard Chartered loan was used to develop AKT.
A lawyer acting for AKT said the loan was to the parent, even if AKT was used as collateral.
Court documents obtained by Reuters show the bank's claim for more than US$628 million from AKT was rejected. A similar request for US$104 million made by Singapore trader Noble was also turned down.
Among the handful of accepted creditors are parent Borneo itself, equipment maker Caterpillar and Australia and New Zealand Banking Group (ANZ), owed a total of just under US$1 billion.
This will mean that when coal prices recover, AKT will repay its approved debtors first and only then will it hand cash up to the parent, which in turn should pay the bank - delaying any repayment. The proposed restructure schedule is due to be finalised by the court on Monday.
"AKT is under a debt suspension scheme where they've got to pay back all the debts before they can pay dividends ... it's going to be delayed a bit," a company source said, declining to be identified because of the sensitivity of the matter.
Standard Chartered has not commented on whether the Borneo loan is part of a portfolio of $20 billion it has already earmarked for disposal. The bank declined to comment on Borneo and Tan, as it does not talk about individual clients.
Tan could not be reached for immediate comment. A spokesperson for Borneo did not respond to phone calls or emailed questions.
Further complicating matters for Standard Chartered, AKT has hired Indonesian celebrity corporate lawyer Hotman Paris Hutapea, famed as much for his love of brightly coloured fast cars as for his role as go-to man in major debt defaults.
Paris has made his name helping Indonesian groups write off debt, usually arguing local laws made their original arrangements illegal. Beneficiaries include the Widjaja family, for whom he helped write off billions in bonds after Asia's worst ever corporate default.
Paris argues Indonesian law means coal reserves belong to the state, and so technically AKT's reserves could not have been used as collateral for a loan without the company seeking, and getting, state approval.
Without this approval, the loan - and indeed billions paid out by investment banks to a host of Indonesian miners - could be regarded as "void", he said.
"Reserves under the earth belong to the state so we can not just use the company to get loans with the risk that the asset can be taken by the creditor," Paris told Reuters.
Paris said "zero" miners had complied with the requirement to seek approval, stretching that to power and infrastructure - a potential dampener on any incoming investment into resources, a key sector for Southeast Asia's largest economy.
"This is a nuclear weapon," Paris said.