Rothschild in retreat over coal conflict
THEY say if you play with fire, you get burned. As Nat Rothschild has learned, if you play with coal you end up with dirty fingers. The billionaire financier this week very publicly resigned from the board of Indonesian coal miner Bumi, albeit amid suggestions that he jumped before being pushed.
He declared it a ‘disgrace’ that the powerful Bakrie family, who share a 47pc stake with co-chairman Samin Tan, are trying to buy Bumi’s assets for a bargain basement £873m.
His chief complaint, other than the lowball offer, is that they pitched the plan while an internal investigation into financial irregularities is ongoing.
The plot thickened further yesterday as it emerged that Bumi’s independent directors have now tasked NM Rothschild – the financial adviser that shares Nat’s ancestry – with assessing the cost of buying out the Bakries.
These labyrinthine machinations follow what one City source termed a ‘nuclear war’ between Nat Rothschild and the Bakries, represented by Tan’s co-chairman Indra Bakrie.
The first strike in the conflict came when Rothschild questioned £310m of loans the heavily indebted company made to businesses controlled by board member and Bakrie associate Rosan Roeslani.
That triggered a counterstrike by the Bakries, who tried to oust Rothschild from the board.
The result has been the mutually assured destruction of Bumi’s share price, down 72pc this year.
Those who were always sceptical about Rothschild’s reversal of Indonesian coal giant Bumi into FTSE-listed cash shell Vallar will not be surprised.
This was a business the City knew little about, controlled by businessmen in a part of the world not famed for its transparent corporate culture.
Many feared Bumi was gaining a back door to London’s prestige without taking London’s supposed governance standards to heart. Now the experiment has gone awry, the powerful Bakrie family and friends are trying to wrest back control on the cheap.
Their offer envisages a cashplusshares deal that would see them pay around £873m for Bumi’s stakes in giant Indonesian coal mines. Samin Tan is apparently ready to back them, even before the outcome of the internal investigation into ‘financial irregularities’ revealed by a whistleblower earlier this month.
Tan’s acquiescence ought, on the face of it, to be a surprise. He bought half of the Bakries’ 47pc stake in Bumi for roughly £650m, helping them clear part of their huge debt pile, only to see his holding dwindle in value to just over £100m yesterday.
But according to Rothschild, the Bakries’ offer would see Tan reimbursed to the tune of £10.91 per share, about £465m, compared to the £4.30 minority shareholders would get. That’s a great incentive to forgive and forget.
Rothschild writes that it would be a ‘disgrace’ for Tan to consider the Bakries’ proposal while the investigation is ongoing. Tan is ‘not trying to protect the interests of minority shareholders’ but is ‘complicit in their oppression’.
‘You appear determined to drive through the Bakries’ proposal,’ Rothschild laments.
But buried amid the moral outrage comes a mea culpa. ‘It is a matter of great regret for me that I was a party to bringing the Bakries to London,’ he says.
Sympathy for Rothschild in the City might be limited, given what appears to be a remarkably swift Damascene conversion.
Rothschild wrote to the Financial Times in October last year in defence of the Bumi model. ‘We insist on strong, independent boards,’ he said. ‘In addition, we recognise that rolling out UK standards of corporate governance across the business, including operating subsidiaries, is a priority, and we have made significant progress in the case of Bumi.’
Could he really have been so naive as to think Bumi could go from apparently unexplained loans and powerful shareholders to a model of corporate governance?
People close to Rothschild suggest he will pin much of the blame on the bankers who advised him, namely Credit Suisse and JP Morgan. In practice, it is in everybody’s best interests for Rothschild and the Bakries to go their separate ways. A marriage of convenience has broken down irretrievably and all that’s left is to work out who gets the house and belongings.
The results of the investigation by Macfarlanes, due to report at the end of the month, will likely add another chapter to this sorry saga.
Until then, Rothschild might reflect on the meaning of Vallar, the name he chose for the cash shell he used to bring Bumi to London.
In ancient Rome it was the name of a crown given to the first soldier to break into the enemy camp. The only problem with breaking into the enemy’s camp is that it’s full of people who are out to get you.