Asia Aluminum investors reject buy-back offer

A group of Asia Aluminum Holdings bondholders are turning down a buy-back offer from the region's largest maker of aluminium products, according to one of their advisers.

Warut Promboon, a former bond analyst and a freelance adviser to investors, said the bondholders had agreed over a teleconference call not to sell their bond at the offer price of 27.5 US cents on the dollar.

Asia Aluminum said earlier this month it would buy back US$450 million of 8 per cent senior unsecured notes maturing in 2011 at a 72.5 per cent discount.

It said a fall in demand and product prices, and much higher than expected construction costs of a new plant in Zhaoqing, Guangdong, that was key to its future growth meant it had run into cash-flow problems.

It said it received 'an indication of general support from the Zhaoqing government to help them obtain financing for the offers, and received letters of intent from two mainland creditors to refinance its debt and extend it further loans, provided the bond repurchase was completed'.

Mr Warut said in an e-mail a failure in the offer could see Asia Aluminum default on its loans, and estimated bondholders would recover less than 20 cents on the dollar. 'At the indicative price in Asia of about 15 cents, the market tells you there are bondholders who expect the tender to fail,' he wrote. 'I believe a 7.5 price point loss could be worth the fight for the restructuring of Asia Aluminum, or a better price.'

In a statement, company chairman Kwong Wui-chun rebutted investors' complaint that he would still be able to keep a 30 per cent stake, down from 97 per cent now, after the proposed restructuring. He said he would not receive cash and still would have the responsibility of running the company, while the investors could walk away with cash.

Some investors have questioned the company's motive in buying stakes in an aluminium refinery and a mining company in Guangxi province last year despite its financial problems, suspecting it was a connected deal designed to move capital out of the company.

Mr Kwong insisted the vendors were independent, adding the company had the right to terminate the deal within a year.

He also offered to give the bondholders his entire stake in the company, provided they guarantee not to liquidate the company, lay off its 10,000 staff and not let banks and suppliers incur any losses.