Nov 10, 2011

Rothschild calls for clean-up at Bumi

Nathaniel Rothschild has criticised the management and corporate governance at the Indonesian coal company he is trying to transform into a top-tier global miner.
In a letter seen by the Financial Times, Rothschild called for a “radical cleaning up” of PT Bumi Resources Tbk, the Jakarta affiliate of London-listed Bumi plc and one of the world’s biggest coal miners.
The letter has raised tensions between the aristocratic billionaire and his Indonesian co-investors, the Bakrie family, who are Bumi’s largest shareholders.
“Both myself and the Bakries need an immediate transformation of the way you are choosing to manage PT Bumi Resources,” he wrote in his letter to Ari Saptari Hudaya, a long-time Bakrie family lieutenant who is chief executive of both Bumi Resources and Bumi.
Rothschild owns 11% of Bumi, which in turn owns 29% of Bumi Resources.
His indirect shareholding has raised questions about his ability to influence change at the coalminer. The Bakries did not sign the letter.
“My relationship with the Bakries is just fine,” Rothschild told the FT. “I think they will be thrilled when they read a copy of this letter.”
A spokesman for the Bakrie family, whose financial difficulties forced them to sell half of their Bumi stake this month, said the letter had taken them by surprise.
“We certainly don’t know where this is coming from,” Chris Fong said in Jakarta.
“The points raised in the letter were all raised in due diligence and are a matter of public record ... It’s news to anybody why Nathaniel chose to do it this way.”
Hudaya and Bumi Resources management could not be reached for comment.
In a telephone interview with the FT, Rothschild cast himself as an activist shareholder in the very venture he launched 1 year ago and co-chairs.
Specifically, he attacked Bumi Resources for extending loans to affiliated companies even as it struggled to refinance high-interest bearing debt.
On Tuesday the coalminer refinanced a US$600 million loan from China’s sovereign welfare fund.
Rothschild asked why Bumi Resources had not called in more than $500m of loans to companies including Recapital, Bumi’s third-largest shareholder. He also called for “repatriation of the funds deposited with connected parties ‘for investments’” and requested that Lord Renwick, Bumi’s audit committee chairman, be briefed on US$394 million worth of assets held by Bumi Resources.
Bumi’s shares have fallen 8% over the past 3 months. Rothschild owns lucrative options that will vest if Bumi’s shares rise above £10 per share. On Wednesday they fell 1%to 810p.
 
Disclosure: No position at the stock mentioned above.
 
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