08 Dec 2017 13:27 IST

Mercator in rough waters as Indonesian arm shuts

Court cases could spoil firm’s plans to sell the coal mine

A coal mine in Indonesia’s Kalimantan Province run by a unit of Mumbai-listed Mercator Ltd has been shut since October 15 after the mining company’s local partners dragged the Indian firm to court over a dispute on shareholding.

Mercator is facing three court cases and three police cases in Indonesia, a development that could spoil its plans to sell the mine, which has been a cash cow for the group led by HK Mittal. From a purely ship-owning company, Mercator has diversified into coal, oil and gas, commodity transportation and dredging.

Huge debt burden

The mining company owes some $27 million to ICICI Bank, of some $45 million borrowed to build the mine.

Earlier this year, Mercator decided to exit the coal mining business in Indonesia. It entered that country in November 2010 through an agreement with a local partner and first shipped coal in 2012.

The four-million-tonne (mt) capacity mine has been producing 1.5 mt of coal a year and is a profitable venture.

Through a step-down subsidiary, Mercator held a 46.25 per cent stake in the mine — PT Karya Putra Borneo. Suhadi Zaini, an Indonesian citizen and a director of PT Indo Perkasa, held 45.61 per cent and Kritipal Singh Raheja, the Managing Director of PT Indo Perkasa, owned a 7.5 per cent stake.

The balance 0.64 per cent was held by Ardiansyah Muchsin, a local.

Irrevocable MoA

On February 15, 2017, the partners signed an “irrevocable” Memorandum of Agreement (MoA) to sell their shares and the company, outlining three options.

Under the first option, Mercator would exit the mine by selling a 99.36 per cent stake, comprising its own shares and those held by Zaini and Raheja, to a new buyer.

Zaini and Raheja had the tag-along rights to sell their shares to the buyer at the same valuation offered to Oorja Holding, the subsidiary of Mercator. In the second option, Mercator would first buy 35 per cent out of the 45.61 per cent held by Zaini for $10 million and the balance 10.61 per cent at the prevailing sale price.

The MoA stipulated a six-month time-line, till August 15, to complete the first two options.

Under option 3, if Mercator could not find a buyer for the mine by August 15, Zaini had the right to buy out the 46.25 per cent stake held by Mercator within 30 days (between August 16 and September 14) at $15 million.

Mercator is currently holding 99.36 per cent of the mining company shares under a nominee arrangement.

Under Indonesian laws, a foreign company can only own a 49 per cent stake in a venture.

After the expiry of the six-month period mentioned in the MoA, Zaini exercised his right to buy out Mercator but was spurned by the Indian company, according to court documents reviewed by BusinessLine .

That aside, Mercator also sacked both Zaini and Raheja as directors from the mining company through two deeds executed on August 31 and September 6.

Zaini and Raheja have filed suits in Indonesian courts citing default on the MoA by Mercator and seeking to overturn their dismissals, arguing that they were “arbitrary, illegal and unlawful”, besides urging the courts to declare the deeds as “invalid and nullify” them.

Operations stopped

They are also seeking the court’s permission to repossess their combined 53.11 per cent shareholding in the mine from Mercator.

“There is a big dispute going on. Mining operations have stopped for the past seven weeks. The company is losing money,” said a person briefed on the development.

HK Mittal, the Executive Chairman of Mercator, did not respond to an email seeking comment.

The dispute has delayed the announcement of Mercator’s July-September quarterly results. Nor has this been communicated to the stock exchanges.

In November, the firm raised Rs. 145.41 crore through a Qualified Institutional Placement at a premium of Rs. 43.65 per equity share.