Bakrie Family Wants to Split from Bumi

on Oct 12, 2012

On Friday 12 October shares of Bumi Plc (LON:BUMI), the FTSE 100 coal miner, were trading at £2.9580 – up by almost 60 percent from their Wednesday closing price of £1.85. The price increase is the result of a proposal from the Bakrie family to split from the firm and take back their Indonesian assets.

**Bakrie Family Eyes “Divorce”**
The influential Indonesian family wants to cancel its 23.8 percent stake in the London-listed conglomerate and in exchange receive 10.9 percent of PT Bumi Resources (IJ:BUMI). In the proposal they would take this share up to 29% by paying an additional $278 million (£173 million). The family also wishes to take 85% of Berau Coal Energy, the Indonesian mine. In total the Bakries would have to come up with cash of somewhere between $1.2 and $1.4 billion in addition to handing back their stake in the London listed Bumi.

If Bumi’s major shareholders agree on the deal, they will be left with at least $1.2 billion in cash and no operating assets, backtracking the conglomerate back to square one as an ‘investment shell’.
**Weighting the Scales **
!m[Shares Surge as Investors Hope for an End to The Ill-Fated London IPO](/uploads/story/564/thumbs/pic1_inline.png)Famous financier Nat Rothschild, who secured the City’s stamp of approval on the emerging market coal mining venture, is considering the proposal, which would allow him and the other Bumi shareholders to walk away with some cash in the bank and their reputations intact.

“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,” Rothschild said as quoted by Bloomberg.
Relations between the Bakries and the rest of the shareholders have been icy after a leaked letter from Mr Rothschild called for a “radical clean-up” in Bumi.

The board member’s initial stance on the offer is sceptical as it is not clear from where the indebted Indonesian family will acquire the funds for the deal. Last year billionaire Samin Tan pulled the Bakries back from a default with his $1 billion investment, which gave him 23.8 percent stake in Bumi.
**Bumi Probe**
As of yet there is no update on the ongoing independent investigation led by Bumi into financial irregularities in Bumi Resources. The inquiry has to do with a $637 million (£397 million) writedown of development funds and exploration assets which appeared in the coal miner’s December 2011 year-end financial statement.

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“While we are not able to quantify the amounts involved in these irregularities, we believe this investigation may reinforce the idea that the company needs to address its complex corporate structure,” analysts at JP Morgan, the bank that fostered the creation of Bumi, said last month.
One of the top-10 shareholders in the London-listed conglomerate said for the Financial Times that no decision will be taken regarding the Bakries’ proposition before the lawyers investigating the financial irregularities come up with a conclusion on what happened with Blumi Resources’ financial statement.
Bumi’s troubles are once again a reminder of the risks involved in investing in a country where corporate governance is often patchy and powerful local companies are able to use political connections to protect their interests. The patriarch of the Bakrie family is none other than Aburizal, one of Indonesia’s presidential candidates.

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