Norsk Hydro Quits Takeover Bid

HONG KONG -- Norwegian aluminum supplier Norsk Hydro ASA dropped its efforts to buy Asia Aluminum Holdings Ltd., dashing hopes for an alternative to a restructuring of the Chinese company that will leave some foreign debtholders with next to nothing.

Advisers to the foreign creditors informed them of Norsk Hydro's decision, according to a person familiar with the situation.

Norsk Hydro declined to comment.

The Norwegian company, which describes itself as the world's third-largest integrated aluminum supplier, sent a letter of interest in Asia Aluminum last week declaring its "strong commitment" to exploring a possible acquisition, though it didn't mention a price.

Norsk Hydro's position as one of the world's top aluminum producers made it a compelling candidate to take control of the Chinese company.

However, local government officials in the southern Chinese city of Zhaoqing, where Asia Aluminum is located, opposed the effort, making a Norsk Hydro bid untenable politically. They favor a management-led buyout of the company's assets.

In a letter sent to Ferrier Hodgson, turnaround specialists managing the buyout process, Zhaoqing officials said that an alternative bid would only delay the restructuring process, according to the person familiar with the situation, who saw the letter.

Officials at the bureau couldn't be reached for comment.

Norsk Hydro's efforts also appeared to face fierce resistance from Asia Aluminum's chairman, Kwong Wui-chun. The company "absolutely cannot be sold to foreigners," Mr. Kwong said, according to Southern Metropolitan News, a Chinese newspaper.

Mr. Kwong couldn't be reached for comment.

Rod Sutton, an executive director at Ferrier Hodgson, said he was aware of Norsk Hydro's decision to drop its efforts. "It's regrettable it's too difficult for them," he said.

Asia Aluminum has about $1.2 billion in outstanding debt owed to foreign creditors. Around $800 million of that debt is owed to holders of risky, so-called payment-in-kind notes. These notes allow the issuer to skip interest payments and instead enlarge the amount of existing debt.

Ferrier Hodgson has said Asia Aluminum's restructuring would leave PIK holders with one cent on the dollar.

PIK investors include U.S. hedge funds such as Och-Ziff Capital Management Group LLC, Stark Investments and the proprietary-investment desk of Bank of America Merrill Lynch, part of Bank of America Corp.

Foreign institutions also hold $450 million in high-yield bonds issued by Asia Aluminum in 2004. Holders of these bonds stand to receive about 20 cents on the dollar, Ferrier Hodgson estimated.

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