Agritrade engaged in legal dispute over control of Indonesia coal firm

By Romel S. Gurky

Hong Kong-listed Agritrade Resources Limited said that it has been involved in certain legal proceedings relating to the management and control over Merge Mining Holding Limited (MMHL), a joint venture through which it owns and operates an underground coal mine in South Kalimantan, Indonesia.

In December 2015, Agritrade acquired a 51 percent indirect equity interest in MMHL through its wholly-owned subsidiary, Agritrade Mine Holdings Limited (AMHL) from the previous 100 percent owner of MMHL, Sino Island Limited (SIL), which is owned and controlled by Mr. Jing Yu (Mr. Yu). Upon completion of the Acquisition, SIL continued to own 49 percent of the equity interest in MMHL. Subsequent to the acquisition, Agritrade acquired management control with respect to MMHL and its subsidiaries pursuant to the terms of the shareholders? agreement between AMHL, SIL and MMHL (the MMHL Shareholders Agreement) by appointing its nominees to the relevant boards of directors and boards of commissioners, as well as into key management positions.

?However, contrary to the terms of the MMHL Shareholders Agreement, SIL and its related persons including Mr. Yu have opposed such actions by the group and its representatives.? Agritrade said in a statement on Wednesday.

As a result of this disagreement, Agritrade said it now is involved in the following legal proceedings:

? Hong Kong Arbitration Matter: In June 2016, AMHL initiated arbitration proceedings in the Hong Kong International Arbitration Center against SIL. AMHL alleges, among other things, that SIL through its related parties, including Mr. Yu, breached the MMHL Shareholders Agreement as a result of which SIL has frustrated the corporate governance framework envisaged under the MMHL Shareholders Agreement and the Group?s management rights over MMHL and its subsidiaries. AMHL seeks remedies to enforce its rights under the MMHL Shareholders Agreement including: (i) a declaration of its right to appoint the management of MMHL and its subsidiaries; (ii) an order that SIL procure Mr. Yu to account to AMHL for sums withdrawn from MMHL's bank account; (iii) monetary damages; (iv) removal and resignation of Mr. Yu as a director in MMHL and its subsidiaries; and (v) the termination of the Jakarta Proceedings (described below).

Further, in June 2016, AMHL obtained an interim injunction by way of a consent interim award under the Hong Kong Arbitration Matter that prevents SIL from disposing of any of the assets of MMHL's subsidiaries until the Hong Kong Arbitration Matter is complete or unless otherwise permitted by a subsequent order of the arbitral tribunal.

In May 2017, SIL filed a counterclaim against AMHL in the Hong Kong Arbitration Matter and has sought various remedies, including rescission of the MMHL Shareholders Agreement and the return by the Group of its entire shareholding in MMHL, as well as monetary damages. AMHL disputes the allegations raised by SIL and filed its response to the counterclaim in June 2017. ?The arbitral hearing in the Hong Kong Arbitration Matter is expected to take place in January 2018,? Agritrade said.

? Jakarta Proceedings: In September 2016, Mr. Yu and a related person initiated proceedings in South Jakarta District Court against certain of MMHL's subsidiaries, PT Merge Energy Sources Development (MESD) and PT Merge Mining Industry (MMI), certain of their directors, commissioners and officers (including persons who are directors of the company) and certain other parties. Mr. Yu alleges, among other things, violations of certain provisions of the Indonesian Law No. 40 of 2007 on Limited Liability Companies (the Indonesian Company Law) and the Indonesian mining regulations relating to the appointment of the group?s nominees to the relevant boards of directors and boards of commissioners in MESD and MMI. Mr. Yu seeks nullification of the appointments of the group?s nominees to the relevant boards of directors and boards of commissioners, as well as monetary damages. The group, including the directors and other employees of the company and certain subsidiaries named in the Jakarta Proceedings, dispute the allegations stated therein and is considering its legal options.

?The group cannot predict when the MMHL Proceedings will be resolved and the outcome of such proceedings. The group cannot assure you that it will be successful in such proceedings, or that such proceedings will not result in significant expense to the group and adverse impact to its management and business,? Agritrade said

Agritrade said in August of last year that production and commercial operation of the Merge Mine in South Kalimantan commenced in the second quarter of 2016 with initial sale transactions of coal happened in June.

The company said since the quality of the coal products from the Merge Mine is higher than that of average Indonesian thermal coal, the group aimed to export the coal to power generators located in Asia such as Japan, South Korea, China and Taiwan, countries which may pay a premium for a constant supply of high CV thermal coal.

Editing by Reiner Simanjuntak