There is a chance that the seven-year dispute between Beckkett and Deutsche Bank over the sale of PT Adaro shares, which were held by the bank as collateral for a loan, has come closer to resolution. On Monday, the Singapore Court of Appeal published its judgment on appeals made by both sides on rulings handed out by the country's High Court in September 2007.
The Court of Appeal reaffirmed the lower court's decision that neither Deutsche nor any third parties conspired in 2001 to sell shares in Adaro, Indonesia's second biggest coal miner, for less than they were worth; but said the German lender had breached its duty for failing to take proper steps to sell those shares at the best possible price.
But, it also ruled for Deutsche's counter-claim against Beckkett for $86 million in outstanding principal and interest owed on a defaulted loan, although it stayed the payment pending an assessment on any damages due to Beckkett. That decision will be made by Singapore's Registrar, possibly within six months, after listening to each party's assessment of the correct valuation of those Adaro shares as of 2001.
Deutsche held a 40% stake in Adaro as collateral for a $100 million bridging-loan extended in 1997 to PT Asminco Bara Utama, a company linked to Sukanto Tanoto, one of Indonesia's richest men. Asminco defaulted on the loan a year later at the height of the Asian financial crisis. Deutsche subsequently sold the shares to PT Dianlia Setyamukti, a company controlled by the Soeryadjaya family, for $46 million in 2001, after repeated standstill agreements and failures to negotiate a restructuring of the loan.
But Beckkett, the Singapore-based entity that owned Asminco and is controlled by Tanoto, has repeatedly alleged that Deutsche conspired with Dianlia and others to sell the Adaro shares at less than market value. The Soeryadjaya family, which is also among Indonesia's wealthiest families, later sold some of the shares in a leveraged deal to a group of international investors, including the Government of Singapore Investment Corp (GIC) and Goldman Sachs.
Confirmation that Deutsche acted lawfully when it sold the shares to Dianlia suggests that any further attempts by Beckkett to recover its 40% stake in Adaro would seem futile. In the court's words, the sale "was not improper nor effected pursuant to a conspiracy between them [Deutsche and Dianlia], whether by lawful or unlawful means".
So, clearly it's now a numbers game and, sensibly, all parties will prepare their 2001 valuations for the Adaro shares and be ready to present them to the Registrar for its deliberation in a few months' time.
Of course, it isn't that simple. In fact, the public relations war related to this saga has just been provided with another battlefield.
Yesterday, Beckkett's PR advisors, Financial Dynamics, released a press statement that triumphantly, if not a tad prematurely, declared that "Deutsche Bank may have to compensate Beckkett to the tune of over $200 million following yesterday's decision by the Court of Appeal of Singapore awarding Beckkett victory (sic)".
"This is clearly a victory for Beckkett," trumpeted a Beckkett spokesperson. "The court has said in its findings that (Deutsche Bank) did not take proper steps to sell the pledged shares at the best price. As a result the court has categorically allowed Beckkett's appeal and claim for damages against the bank".
The Beckkett spokesperson even felt confident enough to give a rough idea about how compensation should be calculated which, no doubt, will help ease the Registrar's burden.
"If you reference Deutsche Bank's own valuation undertaken by Deutsche Capital Singapore and prepared for Deutsche Bank the combined value of Adaro and IBT [shares also pledged, but much less significant] was $689.3 million as at August 1999," the spokesperson said. "On the basis of the bank's own valuation and using the illustration given by the High Court judge upon which Beckkett assessed the worth of its 40% stake in Adaro and IBT, this works out to be approximately $276 million. Taking into account the accrued interest on such amount till today and even after setting off the Bank's counterclaim in full, the amount of damages owing to Beckkett by the bank could still be in excess of $150 million."
"Anyway you look at this, Deutsche Bank now has a hefty price to pay for its actions," concluded the spokesperson.
Not surprisingly, Deutsche think this "analysis" is preposterous. Michael West, Deutsche Bank's head of communications in Asia-Pacific, dismissed the claim as "ridiculous and entirely speculative. Beckkett has to prove its claim in court [the Registrar] and Deutsche Bank will have the opportunity to present its evidence supporting its valuation".
Deutsche pointed out in its own press statement yesterday that, "At this hearing [before the Registrar for assessment of the valuation of the shares as at 2001], Deutsche Bank will present evidence for the first time to the court in support of its valuation of the shares".
The bank noted that the "Deutsche valuations" presented in previous court cases were introduced by Beckkett from pre-case discovery processes, and not by Deutsche itself.
No doubt, the bank is likely to highlight other factors, such as the distressed state of the market at the time, which might cause a divergence between "fair value" and "market value". After all, any junior equity analyst understands the difference. But Deutsche also added, maybe a little disingenuously, that "Beckkett has to still prove that it suffered a loss".
While true, the Appeal Court said that Beckket hadn't been required to prove that it had made a loss anyway. That will be determined by the Registrar. Beckkett can present its case for damages, by providing evidence of the 2001 value of those Adaro and IBT shares.
Nevertheless, Beckkett's April 28 press statement was, perhaps, exaggerating when it said that "the court found that Deutsche Bank had caused loss to Beckkett by failing to take reasonable steps to obtain the best price possible when selling Beckkett's 74.2% stake in PT Swabara Mining & Energy" (the company which held a 40% interest in Adaro and IBT).
The court certainly agreed that Deutsche "did not take proper steps to sell the pledged shares...at the best price, and was therefore in breach of duty as pledgee", and that Beckkett had "adduced sufficient proof that the [shares] had been sold at an undervalue".
But as to compensation for Beckkett, what the judgment actually said was a little different from its PR hand-rubbing expectations. In its summary, the court decided that "Beckkett, as pledgor of the SME shares, has no direct claim for any loss arising from the sale of [shares] at an undervalue", but that "it is entitled, as guarantor of the bridging loan, to prove any undervalue with respect to the pledged shares and to set it off against the bank's [Deutsche] counterclaim [of $86 million]".
Yet, Beckkett welcomed the court's ruling as "a clear victory", while Deutsche was "delighted by the decision". By the time the Registrar makes its decision, one of the parties is bound to be less happy: it might even appeal.