Rothschild Buys Indonesian Coal Stakes for $3 Billion

Nathaniel Rothschild, the only son of U.K. financier Jacob Rothschild, agreed to invest $3 billion in two Indonesian coal companies through Vallar Plc, allowing the nation’s biggest producer of the fuel to list in London.

Vallar will buy 75 percent of PT Berau Coal Energy and 25 percent of PT Bakrie & Brothers’ PT Bumi Resources in a cash and stock transaction, the company said today in a statement. After the so-called reverse takeover, Bakrie Group will be the largest combined shareholder in Vallar, to be renamed Bumi Plc.

Indonesia overtook Australia to become the world’s biggest exporter of power-station coal in 2005, and prices for the fuel, set annually, rose 40 percent this year, according to Morgan Stanley. Rothschild, former co-president of New York hedge-fund firm Atticus Capital LLC, raised 707.2 million pounds ($1.13 billion) in Vallar’s initial public offering in London in July to consider deals of as much as 5 billion pounds.

“This acquisition should be well received by investors since this is a good price for high-quality coal assets,” Liberum Capital analysts wrote in a report. “A London-listed, large scale, pure play Indonesian coal play should offer a unique commodity exposure and have strong investment appeal.”

The takeover will create an Indonesian “resources champion,” combining the nation’s largest coal producer, Bumi, and fifth-largest, Berau, according to Vallar. The company expects to complete the deal around April next year, it said.

Mandatory Offer

Vallar, whose London-traded shares were suspended today, plans to make a mandatory offer to Berau’s minority shareholders and increase its ownership in Bumi in 2011, it said.

The Vallar deal, bringing together production from Bumi and Berau that’s estimated to reach as much as 140 million metric tons a year by 2013, would create the largest thermal-coal supplier to China, Rothschild said on a conference call. The producers’ combined coal resources total about 12 billion tons, according to a company presentation today.

Rising demand for Indonesian coal has been spurred by purchases from India and China. Cheaper shipping costs of about $5 a ton give Indonesia an advantage over Australia, the next largest exporter of the fuel, Vallar said today.

PTT Pcl, Thailand’s largest energy company, agreed last week to buy the coal assets of Australia’s Straits Resources Ltd., including two mines in Indonesia, for A$544.1 million ($532 million).

Vallar Ownership

Bakrie Group will hold 43 percent of Vallar stock after the deal. Indra Bakrie is to be appointed chairman, Ari Hudaya is the proposed chief executive officer and Andrew Beckham, finance director.

The planned London listing, the first for an Indonesian company, “will enhance our international profile, provide a currency and platform for development in the region and put us in a much stronger position to build on the organic growth that our combined assets already provide,” Indra Bakrie said in the statement.

“We are bringing it to London, we are listing it on the London Stock Exchange and we’re giving U.K. investors the opportunity to participate in this extraordinary growth story,” said Rothschild, who in April ranked seventh in the annual Sunday Times “Rich List” of the 25 wealthiest U.K.-based hedge-fund managers.

BHP, Rio

Vallar is “following the mould” of BHP Billiton Ltd. and Rio Tinto Group, the world’s largest- and third-largest mining companies, by having a dual listing, he said.

JP Morgan Cazenove Ltd. advised Jersey, Channel Islands-based Vallar and Credit Suisse Group advised Bumi and Bakrie Group on the transaction.

Bumi, Indonesia’s largest coal miner by volume with a market value of 54 trillion rupiah ($6 billion), produced 60 million tons and sold 58 million tons of the fuel last year. Xstrata Plc is the world’s biggest exporter of power-station coal, with more than 30 operating mines in Australia, South Africa and Colombia.

“It is interesting that given Vallar’s ‘mini-Xstrata’ aspirations, it has chosen to make its company-founding acquisition in coal,” Liberum analysts said. “We wonder if this is a case of history now repeating itself.”

Bumi, based in Jakarta, is a unit of Bakrie & Brothers, an investment company controlled by the family of billionaire and politician Aburizal Bakrie, Indonesia’s fourth-richest man, according to Forbes Asia. Sovereign wealth fund China Investment Corp. bought $1.9 billion of debt from Bumi in September 2009.

Vallar Issues Stock

Vallar agreed to issue 90.1 million new shares at 1,000 pence apiece to Bakrie Group for the 25 percent stake, it said.

Bumi shares reversed losses after today’s announcement, rising 2 percent to 2,600 rupiah in Jakarta at the 4 p.m. close. The stock has climbed 7.2 percent this year, compared with a 45 percent gain in the benchmark Jakarta Composite Index.

Berau rose 2 percent to 520 rupiah, extending its advance since listing in August to 17 percent. Berau is 75 percent owned by PT Recapital Advisors’ Bukit Mutiara, which will retain 15.3 percent after the sale, Berau said in a statement. Vallar has agreed to pay $1.58 billion in cash and new shares for its stake at 540 rupiah a share.

Berau expects to produce 17.9 million tons of coal this year, rising to as much as 22 million tons by 2012, President Director Rosan Roeslani said Aug. 19.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE