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It’s Rothschild vs. Widjaja: Superrich Battle Over Indonesia Coal Mine

A battle between members of wealthy families from opposite sides of the world over an Indonesian coal miner on the verge of default will come to a head this week, the latest act in the drama surrounding London-listed Asia Resource Minerals PLC.

Leading the cast list of the superrich involved in the increasingly bitter struggle is 43-year old British financier Nat Rothschild, scion of the famous banking family, who is hoping to win back control of the company he first brought to the London market five years ago.

Asia Resource’s shareholders will vote Thursday on Mr. Rothschild’s proposal to inject $100 million into the company by underwriting a share issue that could take his stake in the company to around 60% from 17.5% now. Mr. Rothschild plans to pay off some of the company’s debt and restructure the rest by extending maturities and modifying the bonds’ interest rates.

Mr. Rothschild’s opponents are the billionaire Widjaja family, which doesn’t own a stake in Asia Resource but is hoping to keep its mines in Indonesian hands at a time of rising resource nationalism there, even as a plunge in coal prices in recent years that has prompted a nosedive in the value of the unprofitable company.

The Widjaja family’s efforts are spearheaded by 33-year old Fuganto Widjaja, grandson of family patriarch Eka Tjipta Widjaja, in partnership with hedge fund Argyle Street Management, a 4.7% shareholder in Asia Resource.

The Widjaja family’s Sinarmas Group, along with Argyle, last week confirmed a rival plan that involves funneling $150 million into Asia Resource via a specially formed investment vehicle, Asia Coal Energy. It says it will restructure the company’s debt in a way similar to that of Mr. Rothschild.

With Mr. Rothschild barred from voting his shares on Thursday, only half of the 83% of remaining shareholders are needed to derail his plan.

A spokesman for Mr. Rothschild said he welcomed the bid from the Widjaja family, saying the competition for Asia Resource would benefit shareholders.

For both sides, the prize is Asia Resource’s 85% investment in PT Berau Coal Energy, Indonesia’s fifth-largest coal producer and owner of three mining sites in East Kalimantan.

Watching on are Asia Resource’s bondholders, who have collectively lent nearly $1 billion to the company. With its cash flow dwindling, the miner will likely default on $450 million of that debt due in July without a restructuring, analysts say.

Supporting characters include one of Russia’s wealthiest billionaires, Andrey Melnichenko, whose SUEK PLC could team up with Mr. Rothschild to bid for Asia Resource if his recapitalization plan succeeds. SUEK doesn’t currently own a stake in Asia Resource.

Meanwhile, advising the Widjajas is Ian Hannam, a former star banker with J.P. Morgan Chase & Co. who left the bank in 2012 following a breach of insider-trading rules. Mr. Hannam first suggested investing in Indonesian coal to Mr. Rothschild.

Both sides are haunted by history.

The Widjaja family was involved in the largest-ever Asian corporate default when its Asia Pulp & Paper defaulted on nearly $14 billion of bonds and loans in 2001 in the wake of the Asian financial crisis.

That background is causing concern for Asia Resource’s bondholders, including Ashmore Investment Management, Pioneer Investment Management and Insight Investment Management. All three have stakes in the default-threatened July note. Spokespeople for the funds declined to comment.

“Bondholders clearly prefer Rothschild, with decent corporate governance, over an Indonesian solution where you don’t know how things are going to play out,” said a person with close knowledge of the debt-restructuring negotiations.

Mr. Widjaja said his family’s history was irrelevant.

“I’m 33. If I default on $1 billion, how am I going to be the steward of a $20 billion Sinarmas Group company when I’m 43 or 53?” Mr. Widjaja said in an interview. “Equating the Asian financial crisis, which brought down countries, to a coal company that can be nursed back to health, is pretty far out.”

Asia Resource—then known as Bumi PLC—was founded by Mr. Rothschild in 2011 in partnership with the Bakries, another wealthy Indonesian family, who owned nearly half the company. Mr. Rothschild soon became embroiled in bitter disputes with the Bakries over accounting irregularities, and resigned from the company’s board in 2012.

The Bakries later split from Bumi in 2014, selling their 47.6% holding in installments to Samin Tan, the company’s then-chairman.

Last week, the Widjaja camp said it had agreed to spend $120 million to purchase loans made by Raiffeisen Bank International AG to entities controlled by Mr. Tan. Because Mr. Tan has defaulted on those loans, Raiffeisen controls 23.8% of the voting rights in Asia Resource, which Mr. Tan had provided as collateral.

Raiffeisen declined to comment on the deal, citing confidentiality issues. Other Asia Resource shareholders contacted by The Wall Street Journal also declined to comment.

Standard Chartered PLC, which has also made loans to Mr. Tan that are now in default, has effective control over the other half of his stake in Asia Resource.

source: http://www.wsj.com