Who’s in Charge? Berau Web Thickens Amid Indonesia Default Test

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Who’s in charge here? That’s just one of the questions an Indonesian coal mining company seeking to avoid a July dollar bond default is having trouble answering.

PT Berau Coal Energy has issued statements in the past month that were denied by its London-based parent Asia Resource Minerals Plc. This week, an ARMS shareholder meeting to approve a recapitalization of Berau by U.K. banking scion Nathaniel Rothschild was adjourned. Indonesian billionaire Eka Tjipta Widjaja is seeking to buy ARMS, unions are campaigning for a local manager and workers have held a strike.

The tangle of conflicting corporate statements threatens the restructuring of $450 million of notes due in July. The miner may default without a restructuring agreement and any indications foreign investors are being discriminated against may undermine the ability of Indonesian President Joko Widodo to attract global funds, according to Standard & Poor’s.

“It could be a test for Indonesia of what happens to foreign-owned companies,” said Xavier Jean, a director of corporate ratings at S&P in Singapore. “The current headlines and fluid situation will just make the refinancing and the restructuring of the bonds more complicated.”

A spokesman at Rothschild’s NR Holdings Ltd. said by e-mail he didn’t expect Berau to default as it considers rival bids from Russia-based SUEK Plc and Widjaja’s Asia Coal Energy.

“Berau has paid all coupons to date and can now agree a solution with bond holders that pushes the July 8 maturity back by six to 12 months giving the company breathing room to evaluate all options from NR Holdings/SUEK, ACE, as well maintaining the existing NR Holdings recapitalization plan, in the likely event the ACE offer falls away,” he said.

Considering Options

Fuganto Widjaja, chief executive officer of Sinarmas’s Golden Energy & Resources Ltd., said his group’s bid is the best chance for Berau to recover and pay its debts. He is the grandson of Eka Tjipta, 91.

“Together, Golden Energy & Resources and Berau are expected to rank among the top three coal companies in Indonesia in terms of reserves,” Widjaja said in a May 13 e-mail. The two could create “a large and crucial supplier of coal to meet Indonesia’s electric generation needs.”

The history of the spat stretches back to 2010 when ARMS -- then called Vallar Plc -- agreed to acquire a stake in PT Bumi Resources from Indonesia’s Bakrie family, in a deal valued at $3 billion. The Bakries pulled out of the venture last year by buying Bumi, the company’s namesake mine, for $501 million.

After the breakup, the London-listed company’s name was changed from Bumi Plc to ARMS. Its main asset was Berau and its coal concession over 118,400 hectares of seam-rich land, almost half the size of the state of Rhode Island.

Sinarmas Offer

Control of ARMS remained in the hands of an Indonesian, Samin Tan, who also controls coal producer PT Borneo Lumbung Energi & Metal. A missed loan payment by Tan in October gave Rothschild the upper hand, if only for a short time. This month, Sinarmas Group, founded by Widjaja, launched a takeover bid for ARMS.

Both Rothschild’s NR Holdings Ltd. and Widjaja’s Sinarmas have outlined Berau recapitalization plans. Creditors and shareholders have to choose which to approve and then vote on it before the July 8 bond repayment deadline.

Berau’s 12.5 percent notes, rated Caa1 by Moody’s Investors Service, are trading at 56.942 cents to the dollar, after plunging almost 15 cents in April. The company has posted losses in four successive quarters through Sept. 30, as coal prices dropped 28 percent last year.

Bidding War

“It is a complex situation given the bidding war,” said Brian Grieser, an analyst at Moody’s in Singapore. Uncertainty over ownership at ARMS and leadership at Berau “are making restructuring efforts very challenging.”

Indonesian companies have defaulted on $2.3 billion of U.S. dollar bonds since 2008, the most among regional corporates, data compiled by Bloomberg show. The two most recent non-payments, Bumi Resources and PT Bakrie Telecom, were related to the Bakrie family. Widjaja’s empire was involved in Asia’s biggest-ever default when subsidiary Asia Pulp & Paper Co. reneged in 2001 on about $13.9 billion of debt.

Who’s in Charge?

Leadership at Berau is in flux. On March 25, Hamish Tyrwhitt, former CEO of Australia’s Leighton Holdings Ltd., was appointed to replace an Indonesian, Amir Sambodo, who resigned as President Director of Berau and CEO of ARMS that day, company filings show. On April 30, a majority of Berau shareholders nominated an Indonesian, Iskak Indra Wahyudi, as Berau President-Director. Tyrwhitt is still the CEO of ARMS.

Singgih Widagdo, a Jakarta-based spokesman for Berau, said by phone May 12 Sambodo remains the president director of Berau, considering Indonesia’s Financial Services Authority didn’t ratify the results of the April 30 vote. Conflicting messages prompted the stock exchange to suspend Berau on May 4.

Widagdo also said some of Berau’s general managers had agreed to work under Sambodo, who signed the company’s recent filing to the Jakarta Stock Exchange dated May 4. Ito Warsito, the exchange’s president director, said by phone May 12 he had sent a letter seeking an explanation from Berau but there had been no reply.

Work Permits

Sean Wade, a spokesman for ARMS in London, said via e-mail May 13 Sambodo isn’t the CEO of Berau because the April 30 meeting was “conducted in good order.” ARMS said in a May 5 filing that Sambodo had issued “misleading announcements” on behalf of Berau.

According to a filing signed by Ari Ahmad Effendi, Berau’s head of legal, the appointment of two ARMS directors -- Keith John Downham and Paul Jeremy Martin Fenby -- as directors of Berau was canceled last month because they didn’t have valid work permits for Indonesia. According to Wade, media reports on that issue are “incorrect.”

On April 29, workers at Berau’s mine held a strike for a few hours, demanding an Indonesian boss. Berau Coal Union Chairman M Lukman Rahim said by phone on May 12 that Berau needs local leadership and ownership.

“Production and activity in the middle of the management conflict is still on going normal,” he said. “So far, the role of foreigners is too large. For operations, if we want to buy some equipment, we need to get approval from London, and that takes time. I hope ARMS will divest their share.”

Bambang Tjahjono, director of development and utilization of coal for the Ministry of Energy and Mineral Resources told Bisnis Indonesia on May 6 Berau’s license to operate mines may be suspended should foreign ownership not be reduced. While there is nothing yet to suggest the government will intervene, coal is of national interest, said Nancy Koh, a credit analyst at DBS Bank Ltd. in Singapore.

“I can’t even tell who is the company president at this point,” she said. “This boardroom tussle has been totally unproductive and diverting attention from real work as the July bond time bomb is ticking.”

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