Our Ref : AMC/AAH547CLM/B3(CORR) Your Ref: STAKEHOLDERS OF THE ASIA ALUMINUM GROUP INCLUDING HOLDERS OF ASIA ALUMINUM HOLDINGS LTD SENIOR 8% NOTES ( Bondholders ) CUSIPs: 04519DAA5, G0536XAA1 ISINs: US04519DAA54, USG0536XAA12 NOTICE DTC 02/12/2010 Dear Stakeholders ASIA ALUMINUM HOLDINGS LIMITED ( AAH ) CHINA STEEL DEVELOPMENT COMPANY LIMITED ( CSD ) ASIA ALUMINUM MANUFACTURING COMPANY LIMITED ( AAMCL ) ASIA ALUMINUM MANAGEMENT LIMITED ( AAM ) (In Liquidation) (collectively, the Companies ) Companies Winding-Up Nos. 140, 142, 165, and 237 of 2009 I write to update you on the latest developments with respect to the Asia Aluminum Group and actions going forward. 1 RECENT DEVELOPMENTS I wish to advise the Stakeholders of recent developments which have a potential impact on the finalisation of the proposed Scheme of Arrangement ( the Scheme ) and the quantum of the distribution of sale proceeds to various stakeholder groups. These developments are as a result of recent discussions and correspondence from the minority shareholder of Asia Aluminum Group ( AAG ) ( the Minority Shareholder ). AAH holds 74.99% of the issued shares of AAG. For the sake of clarity, the Minority Shareholder is a separate party to that of the former management of the Group. 1.1 Bondholders Security Over Intercompany Notes One issue raised relates to three intercompany loan accounts between AAH and each of CSD, AAMCL, and AAG that were assigned as security to the benefit of the Bondholders in accordance with a Share Charge and Intercompany Notes Assignment dated 23 December 2004 ( the Assignment ) executed between AAH and certain of its subsidiaries, and the Bondholders Trustee. The Minority Shareholder is of the view that the security granted for the benefit of the Bondholders over the intercompany loan accounts is not effective. HONG KONG Ferrier Hodgson Limited 14/F, The Hong Kong Club Building 3A Chater Road, Central Hong Kong phone +852 2820 5600 fax +852 2521 7632 email fh@fh.com.hk www.fh.com.hk Hong Kong Jakarta Kuala Lumpur Manila Shanghai Singapore Tokyo Adelaide Brisbane Melbourne Perth Sydney Affiliated with Zolfo Cooper & Kroll Americas Europe Africa Middle East R E S T R U C T U R E & T U R N A R O U N D C O R P O R A T E A D V I S O R Y R I S K S O L U T I O N S C O R P O R A T E R E C O V E R Y
Page 2 The Minority Shareholder maintains that whilst the Assignment states that the asset being assigned as security were Intercompany Notes ( the Notes ), the underlying documents submitted to support the Notes at the time of the Assignment were in fact Loan Agreements executed between the relevant parties. The Minority Shareholder is therefore of the view that the Assignment does not create an effective security over AAH s rights under the Loan Agreements, as the Assignment was specifically made over the Notes (which they argue do not exist) and not over the Loan Agreements. We are seeking further legal advice on this matter. I have indicated the potential effect of the security being found to be ineffective further below. 1.2 Potential Claim by Minority Shareholder A further issue raised by the Minority Shareholder relates to AAH s alleged breach of a Shareholders Agreement entered into by AAH and the Minority Shareholder in relation to their respective shareholdings in AAG. To this end, the Shareholders Agreement contained a number of provisions which acted as safeguards against the transfer of value from AAG to the wider AA Group without the approval of the Minority Shareholder. The Minority Shareholder claims that AA Group companies made a number of payments or transactions that were in breach of the terms of the Shareholders Agreement, for example, payments made by Zhaoqing Asia Aluminum Factory Co Ltd to other entities in the wider AA Group. As a result, the Minority Shareholder considers it has a claim against AAH. We continue to liaise with the Minority Shareholder and are seeking further information from them in relation to their claim before considering it further. 2 EFFECTS ON ESTIMATED STAKEHOLDER RETURNS The matters described above have a potential impact on the Stakeholders estimated returns. The quantum of the impact on estimated returns depends on the outcome of each of the issues.
Page 3 We provide in the table below revised estimated returns to the relevant Stakeholders, given the various outcomes (and subject to the final level of the claim of the Minority Shareholder, if the claim is successful) that may result from these matters. Issue 1 Issue 2 Estimated Returns (Revised) Valid Claim of PIK Minority Bondholders Noteholders Shareholder? Is the Bondholders security invalid? Minority Shareholders No No 19.2% 0.6% HKD24m No Yes 18.6% 0.5% HKD49m Yes No 17.2% 1.4% HKD27m Yes Yes 14.5% 1.2% HKD145m As previously advised to Stakeholders, please note that all estimated returns remain subject to change based on the final quantum of claims submitted. Estimated returns to PIK Noteholders are before costs of the liquidator of AA Investments Limited. Estimated returns are also subject to the issue discussed at part 4 below. 3 IMPLICATIONS ON THE SCHEME AND PROPOSED WAY FORWARD The Liquidators continue to seek ways to progress the finalisation of the Scheme and expedite the distribution of sale proceeds to the Stakeholders despite the matters referred to above. Whilst I do not at this time consider resolution of these matters will cause significant delays, I am currently unable to estimate a timeframe for the resolution thereof. It is possible a resolution may only be obtained by way of an application to Court. In view of this and subject to the Stakeholders approval, the Liquidators propose that the Scheme continue to be finalised and progressed, notwithstanding the matters raised above. In this regard, with respect to each matter: 1. The Scheme can be progressed in conjunction with the Liquidators seeking to determine the validity of the security. To the extent necessary, an initial dividend can be paid if the validity of security has not yet been resolved or determined, with sufficient funds held back to ensure no Stakeholder s position is jeopardised and then the balance of funds paid to the appropriate Stakeholders once validity of the security has finally been determined. 2. It is up to any creditor to prove their claim. If the Minority Shareholder is unable to prove its claim to the satisfaction of the Scheme Administrator, the claim can be rejected, allowing the creditor to appeal to the Scheme Adjudicator to resolve the dispute or refer it to arbitration or the Court. Similar to item 1 above, an interim dividend could be paid pending resolution of the dispute.
Page 4 I consider it is in the Stakeholders interest that the Scheme is finalised in parallel with the resolution of the matters referred to above. The Liquidators will require an indication of the Stakeholders consent to proceed down this path. Note that the alternative to implementing the Scheme is to conduct an initial dividend distribution through the liquidation of various companies, however this process will take more time and require the Liquidators to make certain applications to Court before it could proceed. In any event, the matters raised above would still need to be dealt with. 4 PROPOSED LITIGATION FUND The Liquidators also wish to discuss and receive feedback from Stakeholders regarding setting aside up to HKD20 million as a litigation fund from the proceeds of sale currently held by the Liquidators to allow them to pursue certain legal claims against certain parties regarding transactions entered into by the Group prior to its collapse. Without setting aside these funds, the Liquidators may not have sufficient funds available to fund the costs of the actions contemplated. Whilst it is difficult to estimate the recoveries that could be made from these legal actions, based on legal advice received, we consider there are good prospects for success. Use of the funds would be subject to the supervision of a steering committee to be established under the Scheme. To the extent the litigation fund is not utilised, the balance would be paid to relevant Stakeholders. The impact on returns of setting up the litigation fund is small. For example, the estimated impact on return to Bondholders is less than half of a cent in the dollar. 5 NEXT ACTIONS/EVENTS The Liquidators will hold a conference call at 9:00pm (Hong Kong) / 1:00pm (London) / 8:00am (New York) on Thursday, 18 February 2010 to: 1. Further discuss and address any queries the Stakeholders may have regarding this letter, including regarding the options available to progress dividend distributions to Stakeholders. 2. Obtain the Stakeholders views and provide further information on the Liquidators proposal to finalise the Scheme in parallel with the resolution of the legal issues discussed. 3. Receive feedback on setting up the proposed litigation fund.
Page 5 Conference call details are as follows and additional international access numbers are provided in Annexure 1. Phone Number : (+852) 3005-2233 Conference Reference : 109149040 Participant PIN : 670470# 6 STAKEHOLDER CONTACT If Stakeholders of AAH, CSD, AAMCL and AAM wish to receive direct communications from the Liquidators, please contact us at fh@fh.com.hk with a request to be placed on our distribution list and the following information: 1. Name of creditor / beneficial bondholder 2. Amount of bond holdings / claim 3. Contact information: a. Email address b. Telephone number c. Mailing address 4. Proof of bond holdings / claim (i.e. bank statement, screen shot of holdings, invoices, etc) Should you have any queries, please call +852 2820 5600 or email fh@fh.com.hk. Yours faithfully ASIA ALUMINUM HOLDINGS LIMITED CHINA STEEL DEVELOPMENT COMPANY LIMITED ASIA ALUMINUM MANUFACTURING COMPANY LIMITED ASIA ALUMINUM MANAGEMENT LIMITED Roderick John Sutton Joint and Several Liquidator Encl
Annexure 1
ArkadinAnytime ACCESS NUMBERS Arkadin gives you the freedom & flexibility to access ArkadinAnytime from anywhere in the world! Simply dial one of the following access numbers, then enter your PIN followed by the # key HKSFCBRI1 109 / 072009 To access your conference call within Hong Kong dial the HONG KONG LOCAL ACCESS NUMBER 3005 2000 To access your conference call outside of Hong Kong dial +852 3005 2000 or one of the INTERNATIONAL ACCESS NUMBERS listed below COUNTRY TOLL-FREE TOLL Argentina 800 666 3307 Australia 1800 230 935 +61 2 9253 5856 Austria 0800 291 110 Bangladesh 157 0013 WSC Code 3100 Belgium 080 071 809 Brazil 0800 8911 922 Canada 1866 869 1825 +1 416 849 8307 Chile 123 0020 2112 China NA 400 681 6949 Czech Rep. 800 001 112 WSC Code3050 +420 2 9633 5625 Denmark 8088 6026 Finland 0800 114 370 +358 9 8171 0307 France 0800 907 565 +33 1 7304 5345 Germany 0800 000 3612 +49 30 5900 24811 Greece 008 001 27178 Guam 1866 652 8 981 Hungary 068 001 8223 India 1800 200 4244 Indonesia 0018 0365 7894 Ireland 1800 657 093 Israel 180 921 4 963 Italy 800 787 938 +39 64 523 0411 Japan 005 3112 1852 +81 3 4455 1431 Luxembourg 800 271 88 Macau 0800 265 Malaysia 1800 802 232 +60 3 6279 5036 Mexico 001 866 22 0 8549 Netherlands 0800 022 0733 New Zealand 0800 449 763 Norway 800 161 99 Pakistan 008 001 2001 WSC Code 3006 Philippines 1800 1651 0443 Poland 008 001 212 346 Portugal 800 815 524 Russia 810 800 2625 1012 Singapore 800 852 3576 +65 6307 7602 Slovakia 0800 001 253 South Africa 0800 990 587 South Korea 007 981 4800 6847 +82 2 3483 7263 Spain 900 941 847 +34 91 788 9873 Sri-Lanka 2473173 Sweden 020 790 509 +46 85 052 0411 Switzerland 0800 561 738 Taiwan 0080 185 6004 +886 2 8723 1010 Thailand 0018 0065 6852 UAE 0800 111 WSC Code 3101 UK 0808 234 6305 +44 20 7153 9157 USA 1866 549 1292 + 1 70 3344 7059 Vietnam NA +84 444 583 282 FREQUENTLY ASKED QUESTIONS Can I use ArkadinAnytime from abroad? Yes, you can use the international access numbers list provided by Arkadin or the standard (domestic) toll number listed on your access card when traveling abroad. If my participants are in a country that is not listed, how do they access ArkadinAnytime? You can provide your standard (domestic) toll access number. Participants would dial your country code prefix + the toll number on your access card. Alternatively, our Customer Service team can dial out to your participant(s). Simply press *0 for assistance. Why would I provide my international participants with a country-specific toll number? Provide participants with a country-specific toll number if you want your participants to share the cost of conducting your conference call. The country-specific international access numbers provided by Arkadin will allow your participants to dial a local number and be billed with local charges, which eliminates additional long distance country-to-country charges for your participants. The moderator still pays for the ArkadinAnytime service charges. Why would I provide my international participants with a country-specific toll-free number? Provide a country specific toll-free number to your participants if you do not want them to pay to join your conference. When participants use the international toll-free numbers, all charges will be billed to the Moderator of the conference, which includes the local toll-free charges + ArkadinAnytime service charges. Can I manage my call from my desktop? Yes, by using the Arkadin Audio Console you have complete control over your audio conference. Dialing out to a single participant or a group, muting/un-muting and recording are some of the many features available via this service. For more information contact Arkadin Customer Service at +852 3528 0090