Investors' struggle for Adaro control heats up

Leony Aurora and Riyadi Suparno, The Jakarta Post, Jakarta

As coal prices are soaring, a fight between investors to gain control of PT Adaro Indonesia, one of the country's largest coal mining companies, is heating up with the parties trying to drag the government into the dispute.

Letters from both parties -- Singapore-based Beckkett Pte Ltd and PT Dianlia Setyamukti -- have been flying to officials at the Ministry of Energy and Mineral Resources, and even to the President, while the legal battle goes on to the Supreme Court.

Beckkett, which is indirectly owned by Raja Garuda Mas business tycoon Sukanto Tanoto and Tirtamas Group chairman Hashim Djojohadikusumo, wants the government to review the sale of its 40 percent shares at Adaro by Deutsche Bank AG Singapore to Dianlia, which is controlled by Indonesian tycoons Edwin Soeryadjaya and Benny Soebianto.

Deutsche Bank and Dianlia, nevertheless, have argued that the sale was legal in the first place and therefore should not be canceled.

The fracas is taking place at a time when Dianlia owners Edwin and Benny and two other local businessmen Teddy P. Rachmat and Boy Garibaldi Thohir are in the process of purchasing a 41 percent stake in Adaro from New Hope of Australia.

Nevertheless, officials from the Ministry of Energy and Mineral Resources have given mixed signals in response to the dispute.

The ministry's director general of geology Simon Sembiring, for example, issued a letter to postpone the approval of Adaro's share transfer. However, it is not clear which share transfer was being addressed. Most likely, though, it is the new transaction, from New Hope to the local consortium.

Later, energy minister Purnomo Yusgiantoro joined the fray and said -- as quoted by Koran Tempo -- that the dispute was a business-to-business matter, and the government would not intervene.

The story starts with PT Asminco Bara Utama, which at the time owned a 15 percent stake at Adaro, borrowed $100 million from Deutsche Bank in 1997, using its shares as part of the collateral. The loan was used, among others, to buy a 25 percent stake at Adaro from PT Tirtamas Majutama and PT Panca Muspan.

Asminco is indirectly controlled by Beckkett through PT Swabara Mining and Energy. Beckkett itself acted as one of the guarantors for the loan.

Because of the financial crisis, the loan turned soar and Asminco failed to pay when it matured in August 1998. Both Asminco and Deutsche Bank then tried to restructure the loan, but after three years of talks, they failed to reach an agreement, and Deutsche Bank took over Asminco's shares in Adaro.

Deutsche Bank sold the shares to Dianlia for $42.2 million in a private deal in February 2002. After selling other collaterals, the bank collected $46 million.

The sale was given the green light by South Jakarta District Court through a number of decrees, and was confirmed by the Ministry of Energy and Mineral Resources in the same year.

Later, Beckkett cried foul over the deal.

In January 2005, almost three years after the sale, Beckkett filed a case with the South Jakarta District Court contesting the sale, but the case was withdrawn two weeks later.

Beckkett then filed an appeal with the Jakarta High Court, which then declared all decrees issued by the South Jakarta District Court regarding the sale of shares at Adaro as invalid.

Dianlia, through its lawyer Adnan Buyung Nasution, then asked the Supreme Court to rule against the high court's decision, saying that the decrees issued by the South Jakarta District Court could not be appealed as they were not case-based verdicts.

The Supreme Court has not given its stance.

Beckkett's legal representative OC Kaligis and Lucas claimed that the sale of shares by Deutsche Bank to Dianlia should have been done through a public tender and that the shares were worth much more than what was paid.

Patrick Walujo, Teddy Rachmat's son-in-law, contended that the deal happened in 2002, when coal prices were not as high as they are now and corporate debt remained high.

As an illustration, Patrick said, the best recovery rate booked by the defunct Indonesian Bank Restructuring Agency was at around 40 percent of the total debt. "So what we paid -- $46 million for the $100 million debt -- was a good price for the seller at that time."

Even if the price was all right, Kaligis said that Beckkett was left in the dark and only found out about the sale three days after it took place.

"Why do it privately? If all is well, why not be transparent about it?" he said. Beckkett believes that through a tender, Adaro would have coveted a better deal.

The bank said that, according to its contract, in the case of a default, it was allowed to sell the shares in private and could determine whatever price it saw fit.

"If this were true, why did it get court decrees prior to the sale?" Kaligis said.

Sandiaga S. Uno, who works for Edwin Soeyadjaya, said that Deutsche Bank sought court approval to make the deal even stronger, but only to find it problematic later.

He speculated that the dispute might not have happened if coal prices had not increased to the current level.

According to Bloomberg, U.S. Big Sandy's coal spot index averaged US$61 in the first quarter of this year, compared to $54 last year, $32 in 2003 and $25 in 1999.

"If coal prices had not increased to the current level, I don't think they would have any interest in making a noise in the first place," he said.

Now it rests with the Supreme Court to clear the dispute.