Financier Nathaniel Rothschild’s decision to accept a takeover offer for his stake in Asia Resource Minerals Plc paves the way for the new owners to renegotiate bond repayments to avoid default in July.
Indonesia’s PT Berau Coal Energy, of which ARMS owns 85 percent, has $450 million in notes maturing on July 8 and $500 million of debentures due in March 2017. ARMS, with a market value of 88.6 million pounds ($136 million), is seeking to extend debt maturity to 2019 after saying there wasn’t enough cash for noteholders.
“The only way to avoid a missed principal payment is to execute the debt exchange,” Brian Grieser, an analyst in Singapore at Moody’s Investors Service, said by phone. “There’s been a lot of noise at the ARMS shareholder level which has prevented them from moving forward with this bond transaction. I’d be surprised if they can get the refinancing done before they resolve their shareholding issues.”
Rothschild on Monday said he will accept 56 pence a share for his 17.2 percent ARMS stake from Asia Coal Energy Ventures, or ACE, a vehicle funded by billionaire Eka Tjipta Widjaja’s Sinarmas Group. That’s 37 percent more than an earlier bid and values ARMS’s equity at $207 million.
ACE is due to make a formal offer by June 11. ARMS’s board will set out its views on the new takeover terms at a general meeting to be held by the end of the month, the U.K. company said in a regulatory filing.
Rothschild’s earlier plans to underwrite a $100 million equity raising to help ARMS renegotiate its debt and avoid a default were derailed last month when ACE made a 41-pence-a-share offer. While Rothschild derided that bid, he abandoned plans to make an offer of his own with Russian mining group SUEK Plc.
“If investors are going in for the long haul, they do need to really feel comfortable with the sponsor behind ACE,” said Nancy Koh, a credit analyst in Singapore at DBS Group Holdings Ltd. “For Berau bondholders, there’s just too much speculation and guesswork until there is a serious proposal on the table.”
Berau’s 2015 notes were down 0.1 cents at 65.8 cents on the dollar as of 11:04 a.m. in Hong Kong on Tuesday, after surging 3.9 cents Monday. The 2017 notes fetched 63.3 cents, following a 3.2 cent advance Monday. Both securities traded below 50 cents in January.
The bonds are “speculative buy,” CreditSights Inc. said in a report Monday. While the ARMS shareholder agreement removed the biggest hurdle to its debt restructuring, headline risks remain high with little insight into Berau’s recent operating performance, it said.
The Sinarmas Group has interests in pulp and paper, financial services, real estate and telecommunications. It also controls Singapore-listed Golden Agri-Resources Ltd., the world’s second-largest oil palm planter.
Widjaja’s net worth is about $6 billion, according to data compiled by Bloomberg, making him Indonesia’s fourth-richest person. The Asia Pulp & Paper default triggered a run on deposits at a Sinarmas banking unit that was later sold to a consortium of foreign buyers.
Rothschild, the only son of British banker Jacob Rothschild, agreed in 2011 to invest $3 billion in the Indonesian coal industry through Vallar Plc, allowing the nation’s biggest producer of the fuel to list in London as Bumi Plc. The deal with Indonesia’s Bakrie family collapsed two years later, leading the Bakries to sever ties with the company.
After the breakup, Bumi’s name changed to ARMS, though control remained in the hands of an Indonesian, Samin Tan. The ensuing struggle over governance combined with a slump in thermal coal prices to send ARMS shares down 90 percent. Tan later missed loan payments for his 48 percent stake and surrendered some rights to his bankers.
“While we recognize the ARMS story overall has been a very difficult ride for shareholders, we are nonetheless pleased that the board’s continued efforts to recover value for shareholders from the lows of late 2014 have culminated in this increased offer,” ARMS Chief Executive Officer Hamish Tyrwhitt said in an e-mailed response on Monday. “We acknowledge the key role of Nat Rothschild throughout this process and look forward to continuing to work co-operatively with ACE to progress it as quickly as possible.”