Simon Montlake, Jakarta – Texmaco, the country's largest corporate debtor, liquidated or diverted ownership of some of its prize assets around the time it was taken over by the Indonesian government, according to documents reviewed by Dow Jones Newswires.

Evidence that Texmaco shielded assets from the government would add to pressure on Indonesia to revise Texmaco's debt accord, the country's largest-ever debt restructuring. The documents also raise alarming questions about whether politically connected tycoons can emerge from debt workouts still holding valuable assets.

In September, Texmaco and its owner, Marimutu Sinivasan, signed a $2.7 billion debt workout with the Indonesian Bank Restructuring Agency under which Sinivasan pledged to hand over all his assets and repay the group debts over a 12 year period. During that period, IBRA will own and manage Texmaco, a textiles and engineering group, via a new holding company.

The pact was hailed by economics chief Rizal Ramli as a "model" debt restructuring. Indonesian President Abderrahman Wahid has also praised Sinivasan, and sought to suspend legal probes of his businesses.

But three weeks before that pact, and without informing IBRA officials, Texmaco sold its 60% stake in Germany's Trevira GmbH to DB Investor, a unit of Deutsche Bank AG (G.DBK), raising around $120 million, according to people familiar with the transaction.

Texmaco then used $30 million of those funds to pay Credit Suisse First Boston, which allowed it to recover controlling stakes in two foreign companies that had been seized in July by the Swiss bank as collateral for an unpaid loan, according to internal Texmaco documents.

The shares in the two companies – British garment maker SR Gent PLC and South African textile company Coastal Group - were also pledged to IBRA under the September 30 debt workout.

But, according to documents filed November 22 with the US Securities & Exchange Commission by CSFB, the controlling stakes in SR Gent and Coastal are now owned by Pegasus Assets, a British Virgin Islands registered company.

In the IBRA accord, Sinivasan didn't declare Pegasus as a family or group-owned asset, although he promised to hand over SR Gent and Coastal Group, said an IBRA spokeswoman, Vanda Irawati Arisandi. "According to the [September 30] agreement, Sinivasan should transfer those companies to IBRA as an additional pledged asset," she said.

But it remains unclear why Texmaco would go to the trouble of redeeming the stakes from CSFB with the cash from the Trevira sale, only to see them taken over by IBRA under the debt workout.

Also, before the SR Gent and Coastal stakes were taken over by CSFB in July as collateral for unpaid loans, they were held by Baleine Investments, a Texmaco unit also registered in the British Virgin Islands. Unlike Pegasus, Baleine is on the list of companies declared by Texmaco to IBRA. So ownership of the stakes has effectively passed from a company that was declared to IBRA – Baleine – to a company that wasn't – Pegasus.

Sinivasan declined repeated requests for an interview with Dow Jones Newswires to discuss the transfer of ownership and the sale of Trevira. His spokesman, Joydeep Mazumder, also declined to comment on the matter.

Tom Grimmer, a spokesman for CSFB in Hong Kong, confirmed the sale of the loan collateral to Pegasus, but strongly denied that the bank had helped Texmaco shield these assets from IBRA.

The loan predated IBRA's involvement in Texmaco's debt restructuting and ranked as senior, secured debt, he said. "CSFB foreclosed on these assets in the normal course of business ... [then] we sold the assets," Grimmer said. He said the asset sale was separate from the loan agreement, since the borrower had defaulted and surrendered the collateral.

He declined to give more details about Pegasus, saying it was as a legitimate buyer and that CSFB had verified the source of its funds.

Strong political connections

Sinivasan and his brother, Manimaren Sinivasan, are well know for their high level political connections in Indonesia. Both men were linked to last year's PT Bank Bali (P.BBL) scandal that involved the diversion of state funds to a company controlled by the former ruling Golkar party. The audit of the money trail found that some of the disputed funds had been channeled through Texmaco's bank accounts.

Fears that powerful local businessmen are cutting favorable deals with IBRA has prompted the International Monetary Fund to urge Indonesia to hire outside experts to review the agency's major debt workouts, including Texmaco's.

Provision for these reviews should be included in Indonesia's next letter of intent with the IMF, due later in December, under the fund's $5 billion bailout program, an IMF official said.

Indeed, just days before the Texmaco accord signing, the IMF and World Bank wrote privately to economics chief Ramli urging him to seek a second opinion on the deal and saying it risked being a burden on Indonesian taxpayers.

But Ramli didn't act on the request or bring it to the attention of the powerful Financial Services Policy Committee, which he chairs. The committee approved the Texmaco restructuring on September 30.

The beneficial ownership of Pegasus, which now owns the SR Gent and Coastal stakes, couldn't be immediately confirmed with authorities in the British Virgin Islands. But sources say its sole director is P. Manohar, a senior Texmaco executive.

Asked Monday about his status as director of Pegasus and the ultimate ownership of the company, Manohar declined to comment. "I don't want to talk about it," he said.

It's also unclear what happened to the remaining $90 million that Texmaco received from the sale of Trevira. According to IBRA officials, Sinivasan has subsequently informed the debt restructuring agency that the entire proceeds of the Trevira sale went to creditors of European Fiber Industries, a Texmaco unit based in the Netherlands that was originally used to acquire Trevira in 1998.

But that doesn't appear to be the case for the $30 million paid to CSFB. CSFB originally lent $38 million to Texmaco under an agreement signed in October 1999 by Baleine, CSFB and Icon Systems (ICSI), a US Texmaco shell company that then held the SR Gent shares. Baleine held the Coastal shares via a Mauritius shell company. Baleine pledged the Coastal and SR Gent shares as collateral for the loan.

Baleine then used the money to buy back from CSFB around $125 million of foreign currency notes issued by its polyster unit, PT Polysindo Eka Perkasa (P.PEP). In other words, $30 million of the Trevira proceeds was used in a transaction that apparently has nothing to do with repaying creditors of EFI.

In fact, the motive for buying back the Polysindo debt was to give Texmaco a stronger position in a debt workout which was then under negotiation with Polysindo's private bondholders, owed about $1.1 billion. But that deal collapsed in November 1999 after Sinivasan was accused of misusing around $900 million in state-bank export credits at the height of Indonesia's currency crisis.

One of the charges levelled against Sinivasan by former state enterprises minister Laksamana Sukardi was that export credits were diverted to acquire foreign assets – including the purchase of Trevira in early 1998. Sinivasan denied wrongdoing, and an investigation by the attorney general was later dropped.