Indonesia’s Bakrie family, founders of a palm oil-to-property-empire in 1942, offered to buy back coal assets it helped bring to the London stock market with Nathaniel Rothschild to end a yearlong dispute.
The proposal would split Rothschild, 41, from the Bakries and effectively dissolve a $3 billion venture agreed in 2010 that married a centuries-old British banking dynasty with one of Indonesia’s most-powerful families. London-based Bumi Plc, whose board met in Singapore today, last month started investigating “potential financial and other irregularities” at PT Bumi Resources, the Bakrie-backed Indonesian coal company.
“The deal would completely disassociate Plc from the Bakries and PT Bumi,” Richard Knights, a London-based analyst at Liberum Capital Ltd., wrote in a note today.
The plan would leave Bumi Plc, which holds 29 percent of Bumi Resources, without any mining assets. The proposals will deliver cash of about $1.2 billion to the company, a unit of the Bakrie Group said. The offer is a 67 percent premium to yesterday’s closing prices, Knights said.
The Bakrie Group has offered to swap its 23.8 percent stake in London-listed Bumi Plc for 10.3 percent of PT Bumi Resources, Bumi Plc said today in a statement. The Bakries also proposed to buy back the remaining 18.9 percent in Bumi Resources by Christmas for about $278 million, or 680 rupiah a share. It also offered $947 million for Bumi Plc’s 84.7 percent stake in PT Berau Coal Energy Tbk within six months.
The London-traded venture, is “likely to accept the first offer given the difficulty Plc has faced in imposing its will,” Liberum’s Knights said. The cash proposal for the Berau stake, worth about $533 million, is “more controversial,” he said. “To our minds the only reason for Plc to sell its stake in Berau at this juncture would be perceptions over sovereign risk in Indonesia.”
Bumi Plc said it’s considering the share swap offer along with the cash proposal for its remaining stake in Bumi Resources, Indonesia’s largest coal producer, and will make a recommendation to shareholders.
Bumi jumped by a record in London, advancing 39 percent to 259 pence by the close. Bumi Resources gained 5.8 percent to 720 rupiah in Jakarta. Berau Coal Energy soared 34 percent to 200 rupiah, the biggest jump since it started trading Aug. 19, 2010.
Rothschild said in an e-mailed statement that Bumi Plc would continue to face challenges even after an exit by the Bakries Group.
“As has been noted over the last 12 months, there have been challenges in implementing appropriate standards of corporate governance and these have been a source of friction among the board members and shareholders,” he said.
“Even if the Bakries exit, one of the key concerns that I share with other minority investors is that Bumi Plc would still face a concentration of ownership by a small number of closely related parties and such challenges would remain.”
Rothschild said he noted today’s announcement by the Bakries Group and said he would wait for the investigation a London lawfirm is conducting on behalf of Bumi Plc’s independent directors before commenting further.
“We believe this is an attractive, pragmatic and deliverable solution,” Long Haul Holdings Ltd., a unit of the Bakrie Group, wrote in an Oct. 10 letter to Bumi seen by Bloomberg News. The offer is the result of “irreconcilable differences between the original promoters of the company and the current major shareholding groups,” it said.
As part of its proposal, the Bakrie Group expects the founders, including Rothschild, to return 16 million Bumi Plc shares for cancellation, it said. The stock was originally awarded in return for the deal being agreed, it added. Rothschild owns 10 percent of the company.
Bumi Plc directors, including Rothschild, met on the eighth floor of Singapore’s Mandarin Orchard Hotel. Rothschild and Bumi Plc Chairman Samin Tan declined to comment outside the meeting. Directors Sony B. Harsono and Alexander Ramlie also declined to comment.
“The development appears positive and a likely all round win-win,” Dileep Srivastava, a Bumi Resources director, said today by e-mail. “We are focused on operational excellence, without distractions.”
The probe announced Sept. 24 by Bumi Plc is linked to a $637 million writedown of development funds and exploration assets. Relations between Rothschild and Bumi Co-Chairman Indra Bakrie began to sour last year after the financier made public a letter to then-Chief Executive Officer Ari Hudaya urging a “radical cleaning up” of Bumi Resources.
Hudaya quit the board of Bumi Plc a day after the probe was announced. He is president director at Bumi Resources.
Investors in Rotshchild’s Vallar Plc, the precursor to Bumi, paid 1,000 pence a share in the initial public offering of July 2010. The stock fell to as low as 120 pence on Sept. 24.
PT Bakrie & Brothers, controlled by Aburizal Bakrie, billionaire and brother of Indra, sold half of their 47.6 percent stake in London-listed Bumi in November to help pay $1.35 billion in debt 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.
Bumi Plc CEO Nalin Rathod declined to comment on how the the Bakries would fund the purchase.
After announcing the tie-up with Indonesia’s Bumi and Berau in 2010, Rothschild outlined a vision to create a global “mining champion” for Indonesia.
“Indonesia is a sleeping giant,” he said in an interview after the original deal was announced Nov. 16, 2010. “One scratches one’s head to think why isn’t there a mining champion out there already and hopefully we are in the process of showcasing one in the years ahead.”