Feb 6, 2012

Nat Rothschild & Bakrie: It's complicated

The complicated history behind the latest bust-up over at Nat Rothschild’s Indonesian mining company Bumi PLC isn’t one for the fainthearted. Here’s an attempt to untangle it.
Nat Rothschild, scion to the banking dynasty, as quoted by WSJ today, listed a shell company, Vallar PLC, on the London Stock Exchange in June 2010, marking the former Lazard banker’s foray into mining and Southeast Asia.
“Vallar was the name of the coin given to the first Roman foot soldier who successfully stormed an enemy encampment and survived,” he told the WSJ in an interview last year. Mr. Rothschild certainly sounded prepared to weather the drama ahead.
Vallar then pursued a reverse listing of Indonesian coal assets in November 2010—yes, those market maneuvers that have been causing all sorts of trouble for Chinese companies listed in the U.S.—by acquiring stakes in the country’s largest and fifth-largest thermal coal producers, PT Bumi Resources Tbk and PT Berau Coal Energy Tbk. 
The Bakrie family, one of Indonesia’s richest and most influential families, who controlled Bumi, became the biggest shareholder in Vallar.
Investors cheered Mr. Rothschild’s move and sent shares up 9% that day, as the deal gave them access to Indonesia’s huge coal reserves, which it was selling to China in droves. Vallar was later renamed Bumi PLC in August.
After the success of Vallar’s float, Mr. Rothschild sought to repeat his feat, doing the same with another shell, Vallares PLC in June. Together with ex-BP boss Tony Hayward,
Vallares raised money to buy lucrative but highly risky assets in Iraqi Kurdistan. Vallares was later renamed Genel Energy PLC in November. The deal has enriched Mr. Rothschild further, earning him more than $230 million.
Things started to go awry for Bumi late in October last year. Fears of a global slowdown sent commodity prices, and Bumi’s share prices, sharply downward. 
To add to that, the status of a Credit Suisse-led loan to a Bakrie subsidiary, Bakrie & Brothers, was putting further pressure on the share price. The consortium held a portion of Bumi shares as collateral, and was calling in a $1.35 billion loan to the Bakries.
Bumi shares are more than 14% lower since their listing, and Genel shares have lost 11%. 
The Bakries found help in another Indonesian businessman, Samin Tan, who controls coking coal company PT Borneo Lumbung Energy. Under the deal, which was announced in November, the Bakries sold half their stake in Bumi to Mr. Tan for $1 billion, allowing the Bakries to pay down most of the loan and reducing Bakrie & Brothers’ overall debt level.
Soon after, tensions between Mr. Rothschild and the Bakries became extremely public when the Financial Times published a letter written by Mr. Rothschild to Ari Hudaya, chief executive of Bumi, calling for a “radical cleaning up” of the company.

Disclosure: No position at the stock mentioned above.

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