14 Apr 2015 17:15
14 April 2015
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION
THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE "CODE"). IT IS NOT AN ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CODE AND THERE CAN BE NO CERTAINTY THAT AN OFFER WILL BE MADE, EVEN IF THE PRE-CONDITIONS ARE SATISFIED OR WAIVED
Possible Offer for Asia Resource Minerals plc("ARMS")
by
Asia Coal Energy Ventures Limited("ACE")
The board of ACE confirms that it is considering a possible cash offer to be made by ACE to acquire the entire issued and to be issued ordinary share capital of ARMS not already owned by funds managed by Argyle Street Management Limited (such funds, together with Argyle Street Management Limited, together being "ASML") (the "Offer"), together with a proposed US$150 million equity injection and, in addition, a bond restructuring on substantially similar commercial terms as the current proposed notes exchange.
Highlights
· The proposed Offer would be to acquire the entire issued and to be issued ordinary share capital of ARMS not already owned by ASML at 41.0p per share, a 173.3 per cent. premium to the closing price and a 198.0 per cent. premium to the 30-day volume weighted average price, in each case as at 13 April 2015
· ACE is managed by ARMS shareholder ASML and is being funded by the Sinarmas Group, one of Indonesia's largest business groups
· It is the opinion of ASML that ARMS is being run in a sub-optimal fashion, that it needs an established Indonesian partner and that the current proposed ARMS Recapitalisation (as defined below) is not in the interests of ARMS shareholders or bondholders
· If ACE makes the proposed Offer, it would also intend to implement an alternative recapitalisation with the ARMS board, subject to failure of the proposed ARMS Recapitalisation, under which ACE would underwrite a pre-emptive equity capital raise by ARMS of US$150 million at 28.0 pence per share
· The proceeds from the alternative recapitalisation (after deduction of expenses) would be used to:
- Reduce the ARMS group's debt and exchange its existing 2015 and 2017 notes on substantially similar commercial terms as the ARMS Recapitalisation as set out in the existing open offer document; and
- Fund operational optimisations and provide additional working capital
Commenting on the possible Offer for ARMS, Kin Chan, Partner at ASML, said:
"The possible Offer to ARMS shareholders would provide a full cash offer at a significant premium for all equity holders, while providing a much stronger operational platform for the coal asset in Indonesia, and subsequently a more tangible solution for all debt holders. We urge investors to reject the opportunistic attempt by NR Holdings to gain control of ARMS without making a full and fair offer to its other shareholders. We welcome the involvement of a group of the stature of Sinarmas as a 'white knight' to this key Indonesian asset."
ARMS General Meeting on 22 April 2015
ACE, ASML and Sinarmas invite the ARMS board to enter into discussions with ACE in relation to the possible Offer and the potential alternative restructuring. For the avoidance of doubt, if the ARMS board declines to engage in constructive dialogue with ACE, ACE may proceed with the possible Offer in any event.
ASM intends to vote against the resolutions to be proposed at the General Meeting on 22 April 2015 and would encourage fellow shareholders to vote AGAINST the current proposal at the meeting. Shareholders should note that the final time and date for submission of proxy voting instructions is 11.00 a.m. on 20 April 2015.
Possible Offeror
ACE is a newly incorporated BVI company to be used for the purpose of the possible Offer. It is managed by ASML, a Hong Kong based special situations hedge fund manager with approximately US$850 million under management.
ACE is being funded by the Sinarmas Group ("Sinarmas"). Sinarmas is one of Indonesia's largest business groups with holdings in pulp and paper, financial services, agribusiness, real estate, energy and telecommunications. The group is managed by the Widjaja family and has a number of listed companies located throughout Asia including, Singapore, Indonesia and Hong Kong. The Sinarmas group also includes PT Golden Energy Mines tbk ("GEMS"), an established coal miner and operator listed on the Jakarta Stock Exchange, with sales in 2014 of over 9 million tonnes and over 600 million tonnes of coal reserves. Moreover, Sinarmas also owns power stations that include a 300MW independent power plant in South Sumatra.
Further information on Sinarmas can be found at http://www.sinarmas.com/.
Rationale for the possible Offer
ASML, as a shareholder in ARMS, has long been concerned that ARMS is being run in a sub-optimal fashion, contributing to a severe destruction of shareholder value. In addition, ASML is concerned that the current proposed recapitalisation, supported by NR Holdings Limited ("NR Holdings"), is not in the interests of either shareholders or bondholders. In this announcement "ARMS Recapitalisation" means the inter-related transactions proposed by ARMS to reduce the ARMS group debt and exchange the 2015 notes and 2017 notes, comprising the open offer and notes exchange, all as set out in the circular and prospectus of ARMS dated 31 March 2015. It is the view of ACE that the open offer to shareholders to subscribe for ARMS shares at the open offer price of 25.0 pence per share (the "Open Offer"), as part of the ARMS Recapitalisation, is structured in such a way as to maximise the probability that its outcome will be that the effective control of the Company passes to NR Holdings without giving ARMS shareholders the opportunity to sell their shares by way of a takeover offer at an equivalent price to the open offer price. In addition, in ASML's view, ARMS shareholders are being disincentivised from participating in the open offer because:
· The open offer price is at a significant premium to the ARMS share price;
· Entitlements under the open offer cannot be traded; and
· Only NR Holdings, and not any other interested shareholder, may participate above its pro rata entitlement, by virtue of its underwriting of the open offer.
Accordingly, ASML intends to vote against the resolutions to be proposed at the General Meeting on 22 April 2015 and urges ARMS shareholders to do the same.
ARMS has suffered from a number of financial and operational issues, which have been exacerbated by the low coal price environment. ARMS has stated that it is of the opinion that without a major refinancing it does not have sufficient working capital for the impending US$450 million bond repayment in July 2015.
In the opinion of ACE, ARMS's operating asset, PT Berau Coal ("Berau") should ensure that all stakeholders (including villagers, plantation owners, road users and owners and port operators) are actively engaged, consulted and, ultimately, compensated in order for the mine to operate in an optimal fashion. ACE believes that these issues are best managed with a local Indonesian operator who can better lead on the social and political dimensions of such a key strategic asset. ACE understands from news sources that the Union of Berau Mine Workers, representing approximately 800 workers, has threatened a strike in a letter to Berau's President Director in response to the prospect of foreign management of the mine in country, which may adversely affect Berau's coal production and costs.
ACE is also concerned that there may be illegal mining activities in the concession operated by Berau that would need to be carefully managed. Upon conclusion of a successful Offer, ACE would initiate an investigation into this potential issue as well as a thorough review of the operations of Berau including the arrangements with the contractors, marketing agents and suppliers in order to seek to ensure an efficient and sustainable operation.
ACE believes that the ARMS Recapitalisation, without any compelling concurrent plan to implement and finance an improvement in operational efficiency, will ultimately be unsuccessful in light of the current soft market conditions for thermal coal which ACE believes are likely to persist into the foreseeable future.
The need for an established Indonesian partner
As one of Indonesia's largest business groups and an established player in the local coal mining industry, Sinarmas and the Widjaja family have extensive experience with direct relevance to optimising Berau's operations.
Furthermore, there are continuing tensions in Indonesia regarding the ownership of Indonesian mining rights. In particular, there are multiple examples of mining rights being required to be majority held by Indonesian entities. This is owing to what ACE considers both the object and purpose of the divestment obligations, namely to guarantee the majority control and ownership of Indonesian assets by Indonesian entities. It is ACE's contention that the ARMS Recapitalisation has been structured with a likelihood that a non-Indonesian entity, NR Holdings, will come to control ARMS. It is a concern of ACE that the ARMS Recapitalisation appears to have no established Indonesian partner, which may lead to discussions with the Indonesian government regarding Berau's potential indirect foreign ownership.
ARMS's bond restructuring proposal
Legal analysis conducted on behalf of ACE confirms that the bond restructuring proposal made by the incumbent board may fail to achieve a high level of legal certainty that the bond restructuring can be implemented as currently proposed. In particular, a scheme of arrangement in Singapore, which is an essential component of the ARMS Recapitalisation, may be open to jurisdictional and other challenges given the absence of a sufficient connection between Singapore (where the scheme of arrangement is being proposed) and the business, operations and assets of PT Berau Coal Energy Tbk. It is the view of ACE, having taken legal advice, that a materially more certain legal approach to implement the restructuring would be a legal process in Indonesia (i.e. Penundaan Kewajiban Pembayaran Utang, also known as a "PKPU"), since it is settled Indonesian law that any non-Indonesian court order will not be recognised in Indonesia.
Possible Offer
ACE is currently considering a possible Offer as follows:
· The possible Offer would be made at a price of 41.0 pence in cash for each ARMS share, representing a premium of approximately 173.3 per cent. to the closing price of 15.0 pence per ARMS share, and a premium of:
- 198.0 per cent. to the 30-day volume weighted average price of 13.8 pence;
- 158.0 per cent. to the 60-day volume weighted average price of 15.9 pence; and
- 164.7 per cent. to the 90-day volume weighted average price of 15.5 pence,
in each case as at 13 April 2015, being the last business day prior to the date of this announcement.
· The board of ACE would seek to discuss a recommendation of the possible Offer from the board of ARMS.
· ASML holds an aggregate of 4.65 per cent. of the issued ordinary share capital of ARMS.
If ACE were to make the possible Offer, it would additionally intend:
· As soon as reasonably practicable and subject to the failure of the proposed ARMS Recapitalisation, to seek to implement an alternative recapitalisation with the ARMS board pursuant to which ACE would underwrite a pre-emptive equity capital raise by ARMS of US$150 million. It is currently envisaged that this equity capital raise would be at 28.0 pence per share (subject to prevailing coal and equity prices and market conditions), which is a premium of 12.0 per cent. to that envisaged in the current ARMS Recapitalisation and a premium of 86.7 per cent. to the ARMS closing price of 15.0 pence per share on 13 April 2015. ARMS shareholders who do not wish to participate at this price have an opportunity to realise a significant premium for their shares in cash through the possible Offer. The proceeds from the alternative recapitalisation (after deduction of expenses) would be used to:
- Reduce the ARMS group's debt and exchange its existing 2015 and 2017 notes on substantially similar commercial terms as the ARMS Recapitalisation as set out in the existing open offer document; and
- Fund operational optimisation and provide additional working capital.
· Subject to the completion of the possible Offer, to enter into a services agreement with Sinarmas in relation to the operation of the Berau mine.
The making of any announcement of a firm intention to make the proposed Offer by ACE is subject to, and conditional upon, each of:
· The resolutions to be proposed at the general meeting of ARMS convened for 22 April 2015 (or any adjournment of such meeting) ("Resolutions") not being passed; and
· The conditions to the ARMS Recapitalisation (other than the passing of the Resolutions) not being satisfied or waived and the ARMS Recapitalisation accordingly not being completed.
Together these are referred to as the "Pre-Conditions".
ACE reserves the right to waive, in whole or in part, either or both of the Pre-Conditions at any time at its sole discretion. Even if both of the Pre-Conditions are satisfied or waived, ACE has no obligation to make an Offer.
In accordance with Rule 2.6(a) of the Code, ACE is required, by not later than 5.00 p.m. on 12 May 2015, to either announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Panel in accordance with Rule 2.6(c) of the Code.
This is an announcement falling under Rule 2.4 of the Code. It does not constitute an announcement of a firm intention to make an offer under Rule 2.7 of the Code. There can be no certainty that an offer will be made, even if the Pre-Conditions are satisfied or waived. ACE will make a further announcement in due course, as appropriate.
Hannam & Partners is acting as financial adviser to ACE.
Enquiries:
ACE
Kin Chan
Telephone: +852 2106 0828
Hannam & Partners
(Financial adviser to ACE)
Neil Passmore
Andrew Chubb
Telephone: +44 20 7907 8500
Buchanan
(PR adviser to ACE)
Bobby Morse
Gordon Poole
Telephone: +44 207 466 5000
Further information
Hannam & Partners (Advisory) LLP ("Hannam & Partners"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority for investment business activities, is acting exclusively as financial adviser to ACE and no one else in connection with the possible Offer and will not be responsible to anyone other than ACE for providing the protections afforded to clients of Hannam & Partners, nor for providing advice in relation to the possible Offer or any other matters referred to in this announcement.
This announcement is for information purposes only and is not intended to and does not constitute, or form any part of, an offer to acquire or sell or an invitation to sell or subscribe for or purchase any securities or the solicitation of an offer to sell or subscribe for or purchase any securities in any jurisdiction pursuant to the Offer or otherwise nor should any part of it form part of, or be relied on, in connection with any contract or investment decision relating thereto, nor does it constitute a recommendation regarding the securities of any company in ARMS group.
Overseas shareholders
The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by, or otherwise subject to, the laws of those jurisdictions, and therefore persons into whose possession this announcement comes should inform themselves about and observe any such laws or regulations. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction. It is the responsibility of each such person to satisfy himself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental or other consents which may be required to be observed and the payment of any taxes or fees in such jurisdictions.
Forward looking statements
This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and business of ARMS and its subsidiaries ("ARMS Group") and certain intentions, plans and objectives of ACE, ASML Group and Sinarmas with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as "anticipate", "expect", "estimate", "intend", "plan", "goal", "believe", "hope", "aims", "continue", "will", "may", "should", "would", "could", or other words of similar meaning.
These statements are based on assumptions and assessments made by ACE, ASML and Sinarmas in light of their respective experience and perception of historical trends, current conditions, future developments and other factors they believe appropriate. By their nature, forward-looking statements involve risk and uncertainty, because they relate to events and depend on circumstances that will occur in the future and the factors described in the context of such forward-looking statements in this announcement could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. Although it is believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and you are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this announcement. None of ACE, ASML or Sinarmas assume any obligation to update or correct the information contained in this announcement (whether as a result of new information, future events or otherwise), except as required by applicable law, the Financial Conduct Authority or the Panel on Takeovers and Mergers.
There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are changes in the global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates and future business combinations or dispositions. Nothing in this announcement is intended, or is to be construed, as a profit forecast or a forecast of earnings per share.
Disclosure requirements of the Code
Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.
Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4). Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.
Opening Position Disclosure
ACE will be making a public opening position disclosure disclosing the details required under Rule 8.1(a) and Note 2(a)(i) of Rule 8 of the Code.
Publication on website
A copy of this announcement will be made available free of charge, subject to certain restrictions relating to persons resident in any restricted jurisdiction, on ACE's website at www.asiacoalenergyventures.com by no later than 12.00 noon (London time) on the business day following the date of this announcement. Neither the content of the ACE website referred to in this announcement nor the content of any other website accessible from hyperlinks on ACE's website are incorporated into, or form part of, this announcement.