Group has options to exit new venture if it chooses
GALLANT Venture is investing US$20 million in an Indonesian iron ore miner as part of its strategy to expand into the resources sector there.
Gallant said its indirect subsidiary Gallant Power & Resources (GPR) has agreed to buy convertible bonds issued by PT Sebuku Iron Lateritic Ores (Silo) that can be converted into shares.
In return for the investment, GPR will gain 60 per cent representation on Silo's board of commissioners and board of directors.
The bonds may be converted into Silo shares at any time until they mature – two years after the date of issue. The bonds will be issued within two months of yesterday's agreement. If they are not converted into shares, they will be redeemed at maturity and the principal repaid.
The investment is being made through a complicated deal that includes various put and call options involving Gallant unit PT Batamindo Investment Cakrawala (BIC), which owns GPR.
Gallant's existing investments are mainly in Batam and Bintan, where it operates industrial parks, utilities and resorts. Its two largest shareholders are Sembcorp Industries and Indonesia's Salim Group. Gallant said it hopes to eventually integrate Silo into the group's utility business.
BIC has signed a put and call option agreement with Top Union International Industrial, a Salim Group member, that allows either party to force the sale of a 49 per cent stake in GPR by BIC to Top Union for US$9.8 million.
Similarly, BIC has signed a put and call option agreement with another Salim Group firm, Dornier Profits, for a 2 per cent stake in GPR. If exercised, Dornier would pay BIC US$400,000 for the GPR stake.
BIC has also signed a separate put option agreement with Dornier that allows it to sell all of GPR to Dornier if it chooses, for at least US$20 million – the value of GPR's initial investment in Silo.
The first two agreements are valid for the first six months after GPR's investment in Silo. Gallant said they give it the chance to sell part of its interest in the convertible bonds held through GPR, if need be.
The standalone put option agreement with Dornier is valid for two years and gives Gallant the choice to exit its investment in Silo completely, if it so chooses.
"Investment in the resources-related business is a new business venture for the company and will require considerable time and effort to integrate into the group's existing businesses," Gallant said. "There is no certainty that the integration will be completed successfully, as planned."
Silo's mining operations are mainly on Sebuku Island in South Kalimantan, although it is expanding its activities to Sumatra. It exports its iron, including to China. Silo is also believed to have coal resources, Gallant said.