Rothschild's Bumi alliance with Bakries finally unwound

Nat Rothschild's ill-fated business alliance with Indonesia's Bakrie family has ended after the tie-up that created Bumi plc was unwound in a $500m deal.

A restructuring completed on Tuesday at the coal mining group, now renamed Asia Resource Minerals, ends three often tortured years since the Bakries injected assets into a cash shell set up by Mr Rothschild, the financier from the famous banking family, to create Bumi.

Mr Rothschild, who will remain a large shareholder in Asia Resource with a stake of about 17 per cent, says Bumi fell prey to an extraordinary level of corporate mismanagement "that none of us had imagined would be possible".

The 2010 deal, hailed as creating one of the world's most powerful coal mining groups quickly soured, with bitter disputes between Mr Rothschild, the Indonesian partners and independent board members, and allegations of financial irregularities. Last year Bumi said it had uncovered more than $200m of spending "with no clear business purpose" at its Berau subsidiary. It is taking action to recover more than $170m from Rosan Roeslani, a former executive.

The battles over Bumi contributed to criticism that the UK financial sector had been too eager to welcome some foreign companies to the London market, particularly from the emerging markets resources sector.

Mr Rothschild, who last year lost a fight to oust board members at Bumi, says he allowed the Bakries too much control and that independent directors proved too weak to exert their influence.

As founder of the cash shell that created Bumi, Mr Rothschild benefited from an award of free shares in the company. He says he remains down about £42m on the deal he instituted and says the founders' shares were awarded for risks taken and were "not a one-way bet".

Under the terms of the separation deal now completed, the Bakries have exited Asia Resources by selling their 23.8 per cent stake to Samin Tan, another Indonesian businessman and the company's chairman. He already owned a similar stake. The Bakries have also bought back Asia Resource's 29.2 per cent stake in Bumi Resources for $501m, while Asia Resource has retained 85 per cent of Berau, another Indonesian coalminer.

"This was an unholy mess . . . first chapter has been completed with this transaction," says Nick von Schirnding, chief executive of Asia Resources.

He adds the much delayed deal has been "like walking through a minefield" but is an "outstanding result for investors". Asia Resource has promised to repay some $400m to its shareholders. Mr Tan, who bought into Bumi in 2011, is to step down as chairman.

Richard Knights, an analyst at Liberum, says: "Bumi Resources has great assets and there was a good opportunity but Bumi plc never had more than a minority in the assets and the whole company ended up being controlled by the Indonesians and run for their benefit.

"I think Nick von Schirnding has done a really good job in the circumstances. He has defined a strategy, stuck to it and it has been the best option he had.

"From an investment point of view it has not been that much worse than other coal mining companies - the share price fall is not just about corporate governance problems."

Mr von Schirnding left Anglo American in 2011 to join Bumi as head of investor relations before becoming chief executive in 2012. "I was quite keen to do something more exciting . . . that is the understatement of the year," he says. "The clearing up still has some way to go and I intend to finish the job."

Mr Rothschild adds: "My interests are fully supportive as the company enters the next phase of its development . . . We continue to be buyers of the company's shares, which is the best evidence of our commitment to the ongoing rebuilding shareholder process."

The discovery of financial irregularities led to shares in Bumi being suspended for part of last year. British financial regulators last year said they were investigating whether disclosure rules were breached regarding some transactions at the company. Shares rose 3.3 per cent to 237.5p on Tuesday. Vallar, the cash shell that created Bumi, floated at £10 in July 2010.

Nick Salmon, senior independent director, said the board would continue efforts to recover money owed to the group by Mr Roeslani - who bought into Inter Milan football club last year - and would co-operate with ongoing regulatory investigations.

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