Bumi Plc, the coal producer at the center of an ownership dispute between its founders, said a review of the books at one of its two Indonesian units found $201 million of spending with “no clear business purpose.”
About $152 million was determined to be missing from PT Berau Coal Energy’s finances in 2012 and $49 million from a year earlier, Bumi said in a statement. The Berau Coal review delayed Bumi’s results by more than two months. It today reported a net loss of $2.3 billion for 2012, compared with the year-earlier loss of $337 million, after booking charges of $2.2 billion on its Indonesian coal businesses.
“This happened at various levels in the organization, it happened around procurement, around certain contracts, and so we are investigating those parties,” Chief Executive Officer Nick von Schirnding told reporters in London. “We are doing quite a significant amount of work in terms of getting restitution. I’m not here to be popular, I’m here to sort out this mess.”
Bumi has been at the center of a battle for control between co-founders Nathaniel Rothschild, scion of a centuries-old British banking dynasty, and Indonesia’s Bakrie family since the $3 billion deal that brought them together started to sour in late 2011. Trading in the stock will remain suspended while the company “continues to enhance its internal systems and controls,” it said today.
“This is rightly a major concern and the company has some work to do to restore investor confidence, but significant progress has been made since new management took over at the beginning of the year,” Richard Knights, an analyst at Liberum Capital Ltd. in London, said today by phone. “Structures are being put in place to make sure that payments that didn’t have a clear business purpose will not be reoccurring.”
Rothschild today called on Chairman Samin Tan to immediately resign from the board and described the situation as “absolutely appalling.”
“We’ve established now there has been clear fraud at Berau and the Plc board has been astonishingly slow to act,” he said in a phone interview.
Separately, Bumi said former director Rosan Roeslani, who resigned from the board and his role as president director of Berau Coal in December, received “substantially more” in salary, bonuses and other benefits than had previously been disclosed. He was paid $3.8 million in 2011, according to Bumi’s annual report, published today. In last year’s annual report Roeslani was said to have received $700,638 in salary and bonus for 2011.
“The Board is reviewing the validity of all these payments and the failure to disclose them, and will pursue all appropriate remedies for recovery if they are not valid, and all sanctions that may be available for non-disclosure,” Bumi said. Roeslani also received a termination payment of $322,971 this year after leaving Berau, which was “made without the knowledge of the board of Bumi Plc and recovery will be pursued if it should not have been made,” it said.
Roeslani couldn’t immediately be reached by phone and e-mail for comment. He is an investor in PT Idea Karya Indonesia. PT Idea and Bloomberg LP are partners in Bloomberg Television’s Indonesian-language service.
Robin Renwick, a vice chairman of investment banking at JPMorgan Chase & Co., won’t seek re-election to the board at next month’s annual general meeting, Bumi said in its annual report. Graham Hearne will also resign from the board, it said.
Bumi took an impairment charge of $815 million on its 85 percent stake in the Berau assets, and one of $1.4 billion on the value of its stake in PT Bumi Resources, where it owns 29 percent. Bumi Resources, the biggest coal producer in Indonesia, reported a net loss of $666.2 million for 2012 as lower coal prices hurt sales.
Bumi said last month it hadn’t uncovered any “black hole” during a probe of the Berau Coal unit, Indonesia’s fifth-largest producer of the fuel. Von Schirnding said today he couldn’t make any promises on reclaiming the missing funds and that it’s possible none of the money will be recovered.
Bumi shares, which plunged 69 percent last year, closed at 259.3 pence on April 19, the last day they were traded, giving the company a market value of 625 million pounds ($952 million).
The venture said April 12 it had been unable to verify some spending at Berau Coal. Four days later Bumi Chief Financial Officer Scott Merrillees said he would resign on June 26, the date of its annual general meeting. Berau’s management team is overseeing a full audit and is verifying contracts signed by the Indonesian company, Bumi said on April 22.
The unaccounted-for spending at Berau included $79 million attributed to roads and construction, $42 million to land-related payments and $5 million of goodwill, London-based Bumi said today. A further $24 million of consulting costs were reclassified to other exceptional costs, it said.
“Indonesian legal advisers have been instructed by the company to provide a full report to the Litigation Committee on all options available to PT Berau to seek recourse and take appropriate action against wrongdoers,” Bumi said today. “The company is also engaged in discussions to attempt to recover what the board considers to have been inappropriate expenditure.”
Von Schirnding said in an April 22 interview that as many as 60 people including auditors from PriceWaterhouseCoopers and Ernst & Young were working on the Berau probe, which he expected would take as long as 10 days to complete.
Bumi is also working to separate from Bumi Resources, which is controlled by the Bakries.
The creation of Bumi brought together Rothschild and the Bakries, a family-owned palm oil-to-property empire founded in Sumatra in 1942. Waning coal prices, board infighting and probes in London and Indonesia including an investigation by Macfarlanes LLP into alleged financial irregularities have weighed on the stock.
The Bakries have proposed exchanging their 23.8 percent of Bumi Plc for 29.2 percent of Bumi Resources in a cash-and-share-swap deal, leaving Bumi Plc in control of Berau Coal. Bumi shareholders were scheduled to vote on the deal at the AGM.
That deadline won’t be met and the company hopes to complete the vote “before autumn,” CEO Von Schirnding said.
Bumi has previously sought assurances from the Bakries that they will be able to fund the cash component of their offer, and Von Schirnding said he’ll be enforcing the terms of the original October proposal, which included a $278 million cash component. The Bakries haven’t sought to change the terms, he said today.
The structure of the transaction remains the same, a spokesman for the Bakrie Group said today in an e-mailed statement. An initial $50 million payment has been made and the group “have the balance of the funds available,” the statement shows.