Bankruptcy judge backs Grupo Mexico bid for Asarco

Bankruptcy judge backs Grupo Mexico bid for Asarco

Denver: A bankruptcy judge late on Monday recommended Grupo Mexico be allowed to regain control over copper miner Asarco Llc, saying its $2.2 billion (Rs10,714 crore) bid is more likely to fully repay creditors than that of rival suitor, India’s Sterlite Industries Ltd.

US bankruptcy judge Richard Schmidt in Corpus Christi, Texas, issued the finding over objections from Asarco, its employees and some creditors, who believed Sterlite’s $2.1 billion bid was the best way for the Tucson, Arizona-based company to emerge from four-year bankruptcy protection proceedings.

In a 133-page decision, Schmidt said both plans could be confirmed as both Grupo Mexico and Tuticorin, Tamil Nadu-based Sterlite pledged to pay creditors and continue Asarco operations. However, he said he considered the feasibility of each plan and how creditors, who claim to be owed about $3.58 billion, would be treated under each plan.

“This court believes the parent’s plan of reorganization is superior," Schmidt wrote. “The parent’s plan is more likely to pay creditors in full in that it is funded with sufficient cash."

Schmidt noted Grupo Mexico’s plan called for putting about 83.7 million shares of Southern Copper Corp. stock, worth around $2.4 billion, as well as $500 million in cash into an escrow account as a way to show its intention to fully fund the deal. He compared that with Sterlite’s agreement to provide a $625 million letter of credit as security for closing.

US district judge Andrew Hanen, who will make the final decision on Asarco’s future, has given himself until the end of October to issue a ruling.

Joseph F. Lapinsky, president and chief executive of Asarco, said in an emailed statement that the firm’s board will review the judge’s recommendation and consult with creditors to determine their next step.

“Coming into this trial, we were severe underdogs. I am ecstatic; it’s just very, very gratifying," said attorney Robert Moore, who represents Grupo Mexico and its subsidiary, Americas Mining Corp., over the phone. Sterlite representatives could not immediately be reached for comment.

The outcome involves Asarco’s three Arizona mining operations and a Texas refinery that were placed in bankruptcy in August 2005 when the firm ran out of cash and faced hefty environmental liability and potential asbestos-related claims. Grupo Mexico lost control of Asarco after the company filed for bankruptcy protection when independent directors were placed on the board.

A key issue in the bankruptcy proceeding is a separate $6 billion civil conviction against Grupo Mexico, in which Hanen found it fraudulently transferred stock in Southern Copper, a Peruvian mining firm, away from Asarco. Grupo Mexico had been appealing against that decision.

But now, the stock will remain with Grupo Mexico’s subsidiary, Americas Mining Corp., if the plan is confirmed and takes effect, Moore said. That means Grupo Mexico will not have to pay the $6 billion in damages to Asarco.

Asarco had spurned Grupo Mexico’s advances to reacquire the firm when it accepted Sterlite’s initial $2.6 billion buyout offer last year. But after copper prices plunged in the wake of the market meltdown, Sterlite backed out of the deal in October, saying it wouldn’t close the sale unless Asarco agreed to a price reduction. The acquisition price dropped to $1.7 billion and Sterlite steadily sweetened the pot in an effort to win the battle with Grupo Mexico.