Asia Aluminum drops bond buy-back

PUBLISHED : Wednesday, 18 March, 2009, 12:00am
UPDATED : Wednesday, 18 March, 2009, 12:00am

Asia Aluminum Holdings, the region's largest processor of the metal, and its parent AA Investments have cancelled their joint offers to buy back US$985 million worth of high-yield bonds after a local government withdrew its support.

'The [mainland] municipal government, which previously indicated its support in providing access to financing for the tender offers ... has informed us that it has decided to withdraw such support,' the companies said in a joint statement, without naming the government.

The government's support was conditional on the completion of the bond repurchase. However, this has not happened, as the offers apparently failed to win by the March 10 first deadline the 90 to 100 per cent support from bondholders required for success.

Bondholders have complained the offers were too low. They are expected to discuss restructuring alternatives with provisional liquidator Ferrier Hodgson in a few days.

Asia Aluminum offered last month to buy back US$450 million of unsecured notes maturing in 2011 at a 72.5 per cent discount, while AA Investments proposed to buy back US$535 million of notes due in 2012 at an 86.5 per cent markdown.

The Hong Kong-based company's principal operations are in Zhaoqing, Guangdong, where it is in the final stages of building the second-phase 400,000 tonnes a year aluminium fabrication plant to add to the already operational 350,000 tonnes a year first phase.

Output was 238,700 tonnes for the year to June last year.

The completion of phase two, which has already been delayed from late 2007 to this year, and subsequent cash flows from its operations are key to AA Investments' solvency, as the parent has to start paying cash interest on its notes from July 1 this year.

The facilities cost 8 billion yuan (HK$9.07 billion), and AA Investments is short of the 1.2 billion yuan needed to complete phase two.

Moody's Investors Service has downgraded its senior unsecured credit rating on Asia Aluminum to C from Ca with a negative outlook.

'The rating action reflects the expected low recovery prospect for [the firm's] creditors,' said Moody's analyst Wonnie Chu.

'The negative outlook reflects the high degree of uncertainty over the corporate restructuring and liquidation process.'

Lacking appeal

The value of bonds Asia Aluminum and its parent offered to buy back, in US$: $985m