Bumi Plc, the London-listed coal venture founded by Nathaniel Rothschild, said former Chief Executive Officer Ari Hudaya quit the board, after it started a probe into “irregularities” at its Indonesian operations.
Hudaya, 53, was CEO until March and is also president director of PT Bumi Resources, which is at the center of the investigations announced separately yesterday. The focus of the “urgent” probe into the group part-owned by Indonesia’s Bakrie family will be so-called development funds, Bumi said yesterday. Hudaya is to “focus exclusively on value building” at Bumi Resources, the Jakarta-based company said in e-mailed comments.
The probe is linked to a $637 million writedown of development funds and exploration assets in Bumi’s Dec. 31, 2011, year-end financial statement. It’s the latest turn in a dispute involving Rothschild, 41, and the Bakries since they agreed to a $3 billion deal in 2010 that married a centuries-old British banking dynasty with a family-owned palm oil-to-property-empire started in Sumatra in 1942.
“The company needs to give more and get out in front of these issues,” James Kallman, president of PT Mazars in Indonesia, said by phone from Jakarta. The firm is the auditor of Bumi Resources, which is 29 percent owned by Bumi Plc. “They need to communicate better. If somebody says you have a tsunami of debt and you’re not going to be able to pay your debt, you need to get out there.”
The value of the funds and assets was slashed after auditor PricewaterhouseCoopers LLP was unable to verify the underlying assets, according to a person familiar with the situation, who asked to not be identified as the matter is confidential. A London-based law firm has been appointed to handle the independent probe, which is likely to take weeks to complete, the person said.
Bumi plunged to the lowest on record in London trading yesterday, with $556 million wiped off its market value over five days. It has dropped 83 percent this year, the worst performance among members of the FTSE 350 Mining Index, as coal prices dropped and concern that it may struggle to pay debt weighed on the stock. Bumi Resources owes $1.3 billion to China Investment Corp.
In Indonesia, Bumi Resources dropped as much as 13 percent today before recovering most of the losses. The shares were down 1.5 percent as of 12:27 p.m. local time.
Bumi’s $700 million of bonds due October 2017 have slumped 25 cents this week to 68 cents on the dollar as of 11:20 a.m. in Hong Kong, according to ING Bank NV prices.
The company sold the bonds in September 2010 to yield 10.75 percent, according to data compiled by Bloomberg. The notes yield 21.5 percent, up from 12.7 percent on Sept. 20, ING prices show.
“We believe this leaves Bumi plc with an unnecessary level of reputational/corporate governance risk for investors,” Nomura International Plc analysts including Patrick Jones said in a note yesterday. Servicing PT Bumi’s debt will be “challenging” next year unless the coal price moves higher, Nomura said. Bumi Resources had about $4.1 billion of gross debt at June 30, Nomura said.
The probe comes almost 11 months after Rothschild, whose ancestor helped bankroll Britain’s war against Napoleonic France, made public a letter to then-Bumi Plc CEO Hudaya calling for a “radical cleaning up” of the company and a timetable for the “repatriation of funds deposited with connected parties.”
The Nov. 8 letter cited $394 million of business development funds under non-current assets on the balance sheet of Bumi Resources as at June 20, 2011.
“The existence of these assets are well known to the investment community and certain of these assets are invested with connected parties,” wrote Rothschild, the son of financier Jacob Rothschild. “This is one of the principal reasons why PT Bumi Resources’ shares trade at a significant ‘corporate governance’ discount to the broader Indonesian coal sector.”
Bumi Resources Director Kenneth Farrell said yesterday he wasn’t aware of the allegations noted in the statement. The Indonesian company is seeking further information before commenting, Director Dileep Srivastava said in an e-mailed statement.
The probe will focus on “extensive” development funds at Bumi Resources and an asset in PT Berau Coal Energy, which were marked down to zero in the accounts of Bumi Plc as of Dec. 31, the company said. It gave no figures for the writedown.
According to its 2011 annual report published in April, Bumi wrote down the value of exploration and evaluation assets by $390 million to zero. It also cut the value of business development funds by $247 million.
The London-listed firm plans to contact authorities in the U.K. and Indonesia over the claims, Bumi said, without giving the source of the allegations.
PT Bakrie & Brothers, controlled by Aburizal Bakrie, billionaire and brother of Bumi Plc Co-Chairman Indra Bakrie, sold half of their 47.6 percent stake in London-listed Bumi in November to help pay $1.35 billion in debts owed to Credit Suisse Group AG. Aburizal is the chairman of the Golkar Party of Indonesia. He’s also the 2014 presidential candidate for the nation’s second-biggest political party which was founded by former dictator Suharto.
Rothschild raised 707.2 million pounds ($1.1 billion) in the 2010 initial public offering of Vallar Plc, selling stock at 1,000 pence apiece. It later struck the deal giving it the stake in Bumi Resources and 85 percent of PT Berau Coal Energy, and led to Vallar being renamed Bumi.
That made Bumi the first major Indonesian business to tap the U.K. equity market. Bumi Resources is the largest Indonesian coal producer and owns a 65 percent stake in Kaltim Prima Coal operation, or KPC, and 70 percent of the Arutmin mine.
Bumi Resources purchased coal miner PT Arutmin Indonesia from BHP Billiton Ltd. in 2001. Since then, the company has borrowed to expand its production.
PT Recapital Asset Management missed a deadline to repay a $231 million investment due to Bumi Resources, Bumi said Aug. 28. Bumi board member Rosan Roeslani is the president director of Recapital and the funds were part of the dispute between Rothschild and Bakrie.
Bumi CEO Nalin Rathod said in a May interview the company was in talks to repay debt owed to CIC early as part of a wider plan to reduce financing costs.
The London-listed company will make a further announcement on the investigation in due course, it said yesterday.