ARMS Suitor Says Hostile Forces Could Derail Berau Debt Plan

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The contest for London-listed coal mining group Asia Resource Minerals Plc, or ARMS, has taken a new twist after suitor Sinar Mas Group said “hostile forces” may be planning to derail its takeover attempt.

Sinar Mas, controlled by Indonesian plantation billionaire Eka Tjipta Widjaja, said undisclosed parties may be planning to initiate a legal process to destabilize and destroy its effort to restructure $950 million of bonds owed by PT Berau Coal Energy. That could include a potential bankruptcy or restructuring under local laws, according to a regulatory filing late Tuesday.

The Widjaja family, via its takeover vehicle Asia Coal Energy Ventures Ltd. or ACE, said it has every intention to work with bondholders, ARMS and its creditors “to defeat any such hostile actions” and protect its plan to reorganize Berau’s debt, according to the filing. ARMS owns 84.7 percent of Berau, Indonesia’s fifth-largest coal producer.

Singgih Widagdo, a Berau spokesman in Jakarta, said he didn’t know of any legal measures being taken against the company, in a text message on Wednesday.

ACE is offering 98.8 million pounds ($152 million) to acquire ARMS and has said it will commit another $150 million in new equity to recapitalize the miner. While U.K. banking scion Nathaniel Rothschild, an ARMS shareholder, also proposed a recapitalization plan of his own, he has since ditched an attempt to bid for the company.

Bankruptcy Law

Indonesia’s court-supervised debt moratorium and restructuring process, known by the local acronym of PKPU, is part of the Southeast Asian country’s bankruptcy law that was revised in 2004. It may be initiated by either the debtor or creditor and make take as long as 270 days from the initial suspension of debt payment obligations.

“The PKPU process is typically time-consuming,” Annisa Lee, a credit analyst at Nomura Holdings Inc., said in an interview in Singapore. “Going by history, the outcome generally tends to be less friendly to offshore investors in terms of recovery value than in non-PKPU cases.”

Open Letter

Sinar Mas also, in the June 2 regulatory filing, said it had published an open letter to Berau’s contractors and working capital providers, promising to work in good faith with them.

“We respectfully ask that all contractors and working capital providers to Berau continue to work in harmony with Berau in ensuring that the business is run in as stable and normal a way as is possible,” the letter, which was enclosed in the regulatory filing, said. “We believe any difficulties that are now being faced are temporary and that the long term future of Berau is bright for all legitimate stakeholders.”

Berau has $450 million of 12.5 percent notes that mature on July 8 and $500 million of 7.25 percent debentures due in March 2017. The Widjaja family last week won an in-principle agreement from some Berau noteholders to extend the maturities to avoid a default next month. Under that agreement, the bonds would now come due in July 2019 and December 2020 respectively, and their coupon would be reduced.

The 12.5 percent notes, sold to investors at 100 cents on the dollar in June 2010, traded at 62.512 cents as of 2:03 p.m. in Hong Kong, according to prices compiled by Bloomberg. The 7.25 percent securities, sold at par in March 2010, fetched 59.793 cents on the dollar.