Bumi Plc, the London-listed Indonesian coal venture founded by Nathaniel Rothschild, began a probe into alleged irregularities at associated companies in the Asian country, prompting a record drop in the shares.
The stock has lost almost half its value in the past five days, or about $556 million. “An independent investigation has been commissioned to investigate the allegations on an urgent basis, and is to report to the board,” Bumi said in a statement today. Jakarta-based PT Bumi Resources, 29 percent-owned by Bumi Plc, said it was unaware of the investigation.
The probe is the latest development in a dispute involving Rothschild and the Bakries, the Indonesian palm-oil-to-property family empire founded in 1942. Rothschild, 41, and Indra Bakrie were behind a $3 billion Indonesian coal deal in 2010 that resulted in Rothschild’s Vallar Plc venture being renamed Bumi.
“Its assets are good, but the question is in how it manages the company and its debt,” said Akbar Syarief, a fund manager overseeing about $323 million in assets at PT MNC Asset Management in Jakarta. “There’s the tricky part. It’s a question about good corporate governance.”
Relations between Rothschild and co-chairman Bakrie frayed in November after the U.K. investor, the son of financier Jacob Rothschild, made public a letter to then-Bumi Plc Chief Executive Officer Ari Hudaya detailing his concerns. He called for a “radical cleaning up” of Bumi Resources and a timetable for the “repatriation of funds deposited with connected parties.”
Hudaya today resigned from Bumi’s board, the company said in a separate statement. The 53-year-old was CEO until March this year and is president director of Bumi Resources.
Bumi has fallen 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.
Vallar, founded by Rothschild and former Anglo American Plc executive James Campbell, sold shares at 1,000 pence apiece in a 2010 initial public offering. It later struck the deal with Bakrie, giving it a stake in Bumi Resources and 85 percent of PT Berau Coal Energy.
Bumi fell 25 percent to 147.6 pence by the close of trading in London, the biggest drop and the lowest price since trading started in July 2010, giving Bumi a market value of 356 million pounds ($577 million). The shares declined 22 percent on Sept. 21. Bumi Resources fell 19 percent in Jakarta today.
The probe will focus on “extensive” development funds at Bumi Resources and an asset in Berau Coal, which were marked down to zero in the accounts of Bumi Plc as of Dec. 31, the company said.
The value of the items was slashed after auditor PwC 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.
One investment with a carrying value of $39 million was maintained in the consolidated financial statements, Bumi said.
It also plans to contact authorities in the U.K. and Indonesia over the claims, it said, without giving the source of the allegations.
Details revealed by the probe “may turn off shareholders in the short term,” Richard Knights, an analyst at Liberum Capital Ltd. in London, said today. The investigation should prove positive for the company in the longer term, he said.
Bumi Resources Director Kenneth Farrell said by phone 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.
Bumi’s $700 million of bonds due October 2017 plunged 15.75 cents to 78 cents on the dollar, according to Royal Bank of Scotland Group Plc prices.
The company sold the bonds in September 2010 to yield 10.75 percent, according to data compiled by Bloomberg. The notes yield 17.5 percent, up from 12.5 percent on Sept. 20, RBS prices as of 5:15 p.m. in Jakarta show.
Bumi said Aug. 28 that PT Recapital Asset Management missed a deadline to repay a $231 million investment due to Bumi Resources. Bumi board member Rosan Roeslani is the president director of Recapital and the funds were at the center of the dispute between Rothschild and Bakrie.
Bumi Resources also owes $1.3 billion to China Investment Corp. CEO Nalin Rathod said in a May interview the company was in talks to repay the debt early as part of a wider plan to reduce financing costs.
The London-listed company will make a further announcement in due course, it said in today’s statement.