A Last Gasp for Asia Aluminum's Creditors

By ANDREW PEAPLE A bid by Norsk Hydro for Asia Aluminum may ultimately prove too little, too late for the foreign investors who bought some of its riskiest debt. The case of Asia Aluminum has drawn much interest, highlighting just how poorly offshore debt holders can be treated in the event of a corporate restructuring in China. Until Norsk Hydro's expression of interest, late last week, the only offer on the table was a management-led buyout that would have left senior debt holders recovering around 20 cents on the dollar. The assorted funds that invested into payment-in-kind, or PIK, notes issued by Asia Aluminum, would have gotten around just one cent. Unlike traditional bonds, PIK-notes can pay interest only at their maturity. Yields are high but investors have little protection if a company fails. A tie-up with the world's third largest aluminum supplier would seem to be a welcome development for the PIK-note holders, and a smart strategic move for Asia Aluminum. But it faces hurdles in China. The priority for officials in Zhaoqing, Asia Aluminum's home province, is job preservation. So the local government is instead supporting the management buyout, that's guaranteed to save 10,000 jobs and keep some familiar faces in charge of a key employer. And the support of senior debt-holders -- so far silent -- isn't to be taken for granted, given that they have less to lose than the PIK-note holders. Instead, there may be some in their camp keen to see an end to the saga, preferring the certainty of the management buyout to the still somewhat vaguely defined Norsk bid. The Norwegian company plans to preserve jobs too, but won't be able to submit a detailed bid until June 29, just a day before the deadline. In the mean time, minds that would need to be open to the deal are either shut already, or closing fast. Write to Andrew Peaple at andrew.peaple@dowjones.com