Indonesian court dispute over Berau management may hamper ARMS restructuring

By Fergus Jensen and Cindy Silviana

JAKARTA, May 20 (Reuters) - The dismissed CEO and labour union of Berau Coal Energy have filed a lawsuit against the managers installed by the company's controlling shareholder, Asia Resource Minerals PLC (LSE: ARMS.L - news) (ARMS), the latest twist in a tussle for control of Indonesia's fifth-biggest coal miner.

The management struggle over the company, which aims to produce 26.5 million tonnes of coal this year, highlights the complexity of investment and legal risk in Southeast Asia's largest economy.

It could also complicate a bid by British financier Nathaniel Rothschild against Indonesian conglomerate Sinar Mas for rights to restructure Berau Coal debts of close to $1 billion, $450 million of which is due in July.

Rothschild's restructuring proposal involves a $100 million rights issue that would allow him to increase his stake.

Amir Sambodo said on Tuesday that the lawsuit, filed in the South Jakarta Commercial Court, contests a decision made at a shareholder meeting held by ARMS-appointed managers to replace him as chief executive officer of Berau Coal Energy, arguing that the meeting was held without proper notification.

Trading of Berau shares has been suspended since May 4, as the Indonesian bourse (IDX) and Financial Services Authority (OJK) are seeking clarification on who the rightful and legitimate manager is. Berau share prices have dropped around 85 percent since their 2010 debut.

"We at Berau Coal Energy are taking the initiative to end this at the Commercial Court, so that it's clear. If we don't our shares will continue to be suspended," Sambodo told Reuters. "This is contesting that shareholder meeting and requesting accountability from the individuals who organized it."

Berau Coal labour union chief Lukman Rahim said his members would continue to assume that Sambodo was the CEO. "If the new directors come to the site, we will block them and stop the operation," he told Reuters.

Sambodo says he was forced to resign from ARMS in March without reason or warning, but that an immediate exit from its Berau units would have breached Indonesian law.

In a letter to the stock exchange on Wednesday Sambodo said on May 4 he had retracted his resignation from the Berau companies.

"I will continue to serve as CEO of Berau Coal Energy until my assignment ends in accordance with prevailing law."

In a statement to the London stock exchange (Other OTC: LDNXF - news) on Tuesday, ARMS said Sambodo refused to vacate his position or let its appointed managers into Berau's Jakarta office, but expected the standoff to be resolved quickly.

The company's chief financial officer, chief mining officer, new president director and new president commissioner were being denied access to the head office and had limited access to Berau's IT, accounting systems and bank account information, the statement said.

"The Company believes that PT Berau will be in a position to remove Amir Sambodo from all Group premises and facilities once the notary's minutes of the EGMS have been lodged with Indonesian Ministry of Law and Human Rights."

Moody's on Tuesday downgraded Berau's bonds and its corporate family rating to Caa2 from Caa1, both with a negative outlooks.

(Reporting by Fergus Jensen and Cindy Silviana; Editing by John Chalmers and David Evans)