Berau Debt Workout Clouded by Caribbean Court Loan Dispute

  • Raiffeisen Bank seeking to liquidate Berau's new parent ACE
  • ACE counters that collateral for loans it bought is missing

A legal dispute between PT Berau Coal Energy’s parent and one of its lenders is threatening to complicate the Indonesian coal miner’s debt restructuring.

Austria’s Raiffeisen Bank International AG has begun court proceedings in the  British Virgin Islands in a bid to liquidate Asia Coal Energy Ventures Ltd., Berau Coal’s 85 percent owner, arguing that the investment vehicle reneged on a $120 million loan-purchase signed in May. ACE, 100 percent funded by Indonesia’s Sinarmas group, paid $50 million and withheld the rest because some collateral for the facility is missing, according to its court statements. The case was heard on Sept. 16 and Justice Barry Leon reserved his decision.

A decision in Raiffeisen Bank’s favor threatens to derail a debt restructuring that Berau Coal signed with a majority of bondholders in July involving $950 million of notes, according to independent research firm CreditSights Inc. Berau Coal failed to repay $450 million of U.S. currency debentures that month in Indonesia’s biggest default this year. Sinarmas’s ACE defeated British banking scion Nathaniel Rothschild in July in a takeover battle for a U.K. company whose main asset was Berau Coal.

“The legal dispute may make Berau bondholders more nervous about Sinarmas’ willingness to pay,” said Sandra Chow, a Singapore-based high-yield analyst at CreditSights. “The Berau restructuring, which looked like it was proceeding to plan a few months ago, now looks in jeopardy.”

ACE paid Raiffeisen Bank $50 million earlier this year to acquire soured loans whose collateral included, among other things, a 23.8 percent stake in London-based Asia Resource Minerals Plc, according to a Sept. 8 affidavit filed by ACE’s ultimate director Kin Chan in response to a suit from the lender. That was a crucial part of Sinarmas’s successful takeover. The other 15 percent of Berau Coal’s equity is owned by smaller shareholders, including mutual funds and individuals.

Missing Ships

The loans’ other collateral included various vessels, some shares in the shipyard that built the boats, and some plots of land. Raiffeisen Bank itself came to be in possession of the bad debt and its collateral after Indonesian businessman Samin Tan defaulted on it in October 2014.

According to Chan’s affidavit, Raiffeisen Bank doesn’t have proper documentation for 15 out of 57 tugboats and barges valued at about $1 million each, as well as ownership certificates to three out of five plots of land in Kalimantan, the Indonesian part of the island of Borneo. Chan asserted that 10 of the boats are missing.

Michael Lehotzki, a Vienna-based spokesman for Raiffeisen Bank, declined to comment, citing ongoing litigation. Ari Effendi, the Jakarta-based general manager of legal affairs at Berau Coal, said the dispute doesn’t affect the company’s operations, He also said Berau is still in discussions with its creditors regarding debt restructuring terms.

Fuganto Widjaja, the grandson who oversees the Sinarmas group’s coal businesses, declined to comment, according to his public relations consultants Citigate Dewe Rogerson.

Coal Slump

Sinarmas is controlled by Eka Tjipta Widjaja, ranked the fourth richest person in Indonesia with a net worth of $4.9 billion according to Bloomberg’s Billionaire Index. The family’s Asia Pulp & Paper Co. unit buckled during the Asian financial crisis with some $14 billion of debt in what still ranks as the region’s biggest-ever default.

Berau Coal’s 7.25 percent notes that mature in March 2017 are trading at 36.36 cents on the dollar versus 70.5 cents a year ago. Its 12.5 percent notes are at 36.90 cents. Coal prices in general have tumbled 54 percent in the four years through 2014. Berau Coal’s restructuring plan involves repaying a portion of the bonds due and swapping the rest into new securities. Oscar Luppi, who oversees a private family fund in Geneva and owns Berau Coal’s 2015 notes, said the whole saga had dented his confidence in Indonesia.

“I can tell you that we’ve dramatically reduced all exposure to emerging and Asian markets for exactly these reasons,” Luppi said. “Lack of transparency is something we’ve grown to expect but I can tell you that the actual credibility of the market and its participants has been eroded significantly in the last few years.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE