Sterlite's Asarco Deal Hits Credit Crisis Snag

Indian mining company Sterlite Industries has said it will not be able to close a $2.6bn deal to buy US copper miner Asarco LLC out of bankruptcy, due to troubles in the credit markets, an Asarco attorney said Tuesday.

Jack Kinzie, a lawyer who represents Asarco in the case, said Sterlite, a unit of Vedanta Resources Plc, has said they will not close the deal absent a "substantial reduction" in the purchase price.

The development throws a wrench in Asarco's plans to exit bankruptcy protection, as Sterlite has been the company's preferred sponsor for its reorganisation plan.

However, the move could be a boon for Mexico's top copper miner Grupo Mexico, which owns 100% of Asarco's equity and has been fighting to regain control of the company. Grupo Mexico lacks board control of its subsidiary due to the bankruptcy.

Grupo Mexico has offered a competing $2.7bn plan to fund Asarco's bankruptcy exit, but that has had less support from creditors who believe it will take them longer to receive payments than under the Sterlite deal.

Representatives for Grupo Mexico declined to comment. A Vedanta representative was not immediately available for comment.

Asarco, Sterlite and Grupo Mexico will participate in a mediation on issues regarding Asarco's bankruptcy exit before Judge Marvin Isgur in Houston beginning 30 October, Kinzie said.

It was unclear whether the deal could be renegotiated.

Asarco, which owns three copper mines in Arizona, filed for bankruptcy protection in 2005 after it was sued for $1bn over environmental cleanup and asbestos claims.

Asarco creditors were in the process of voting on the competing plans for Asarco's emergence for bankruptcy, but at a hearing in US bankruptcy court in Corpus Christi, Texas on Tuesday, Kinzie told the court Sterlite could not close the deal.

Judge Schmidt scheduled another status hearing in the case for 4 November, according to court papers.

Sterlite's all-cash offer for Asarco was announced in May, and at the time would have been the largest acquisition by an Indian company outside of India in 2008.

The copper markets also look starkly different from when the deal was signed, as benchmark US copper futures have fallen 33% since 30 May, when the Sterlite-Asarco deal was announced.

Grupo Mexico, which purchased Asarco in 1999, has been involved in legal battles in several courts throughout the State of Texas, to try to regain control of the miner.

If Grupo Mexico is the ultimate winner of Asarco's assets in bankruptcy, it could also change the course of a lawsuit Asarco brought against Grupo Mexico over a 2003 transfer of a Peruvian mining unit.

Judge Andrew Hanen, who sits in US District Court in Brownsville, Texas, had ruled in August that Asarco made a "fraudulent transfer" of Asarco's stake in Southern Copper Corp, but damages have not yet been decided in the case and legal experts have said the case could be moot if Grupo Mexico regains control of Asarco.

By Emily Chasan, Reuters