Sept. 25 (Bloomberg) -- Bumi Plc, the London-listed coal venture founded
by Nathaniel Rothschild, said former Chief Executive Officer Ari Hudaya
quit the board, after it started a probe into “irregularities” at its
Indonesian operations.
Hudaya, 53, was CEO until March and is also president director of PT
Bumi Resources, which is at the center of the investigations announced
separately yesterday. The focus of the “urgent” probe into the group
part-owned by Indonesia’s Bakrie family will be so-called development
funds, Bumi said yesterday. It gave no reason for Hudaya’s resignation
and he couldn’t immediately be reached for comment outside normal
Jakarta business hours.
The probe is linked to a $637 million writedown of development funds
and exploration assets in Bumi’s Dec. 31, 2011, year-end financial
statement. It’s the latest turn in a dispute involving Rothschild, 41,
and the Bakries since they agreed to a $3 billion deal in 2010 that
married a centuries-old British banking dynasty with a family-owned palm
oil-to- property-empire started in Sumatra in 1942.
“The company needs to give more and get out in front of these issues,”
James Kallman, president of PT Mazars in Indonesia, said by phone from
Jakarta. The firm is the auditor of Bumi Resources, which is 29 percent
owned by Bumi Plc. “They need to communicate better. If somebody says
you have a tsunami of debt and you’re not going to be able to pay your
debt, you need to get out there.”
Indepedent Probe
The value of the funds and assets was slashed after auditor
PricewaterhouseCoopers LLP was unable to verify the underlying assets,
according to a person familiar with the situation, who asked to not be
identified as the matter is confidential. A London-based law firm has
been appointed to handle the independent probe, which is likely to take
weeks to complete, the person said.
Bumi plunged to the lowest on record in London trading yesterday, with
$556 million wiped off its market value over five days. It has dropped
83 percent this year, the worst performance among members of the FTSE
350 Mining Index, as coal prices dropped and concern that it may
struggle to pay debt weighed on the stock. Bumi Resources owes $1.3
billion to China Investment Corp.
Napoleonic Wars
“We believe this leaves Bumi plc with an unnecessary level of
reputational/corporate governance risk for investors,” Nomura
International Plc analysts including Patrick Jones said in a note
yesterday. Servicing PT Bumi’s debt will be “challenging” next year
unless the coal price moves higher, Nomura said. Bumi Resources had
about $4.1 billion of gross debt at June 30, Nomura said.
The probe comes almost 11 months after Rothschild, whose ancestor
helped bankroll Britain’s war against Napoleonic France, made public a
letter to then-Bumi Plc CEO Hudaya calling for a “radical cleaning up”
of the company and a timetable for the “repatriation of funds deposited
with connected parties.”
The Nov. 8 letter cited $394 million of business development funds
under non-current assets on the balance sheet of Bumi Resources as at
June 20, 2011.
“The existence of these assets are well known to the investment
community and certain of these assets are invested with connected
parties,” wrote Rothschild, the son of financier Jacob Rothschild. “This
is one of the principal reasons why PT Bumi Resources’ shares trade at a
significant ‘corporate governance’ discount to the broader Indonesian
coal sector.”
Probe Focus
Bumi Resources Director Kenneth Farrell said yesterday he wasn’t aware
of the allegations noted in the statement. The Indonesian company is
seeking further information before commenting, Director Dileep
Srivastava said in an e-mailed statement.
The probe will focus on “extensive” development funds at Bumi Resources
and an asset in PT Berau Coal Energy, which were marked down to zero in
the accounts of Bumi Plc as of Dec. 31, the company said. It gave no
figures for the writedown.
According to its 2011 annual report published in April, Bumi wrote down
the value of exploration and evaluation assets by $390 million to zero.
It also cut the value of business development funds by $247 million.
The London-listed firm plans to contact authorities in the U.K. and
Indonesia over the claims, Bumi said, without giving the source of the
allegations.
Vallar IPO
PT Bakrie & Brothers, controlled by Aburizal Bakrie, billionaire
and brother of Bumi Plc Co-Chairman Indra Bakrie, sold half of their
47.6 percent stake in London-listed Bumi in November to help pay $1.35
billion in debts owed to Credit Suisse Group AG. Aburizal is the
chairman of the Golkar Party of Indonesia. He’s also the 2014
presidential candidate for the nation’s second-biggest political party
which was founded by former dictator Suharto.
Rothschild raised 707.2 million pounds ($1.1 billion) in the 2010
initial public offering of Vallar Plc, selling stock at 1,000 pence
apiece. It later struck the deal giving it the stake in Bumi Resources
and 85 percent of PT Berau Coal Energy, and led to Vallar being renamed
Bumi.
That made Bumi the first major Indonesian business to tap into the U.K.
equity market. Bumi Resources is the largest Indonesian coal producer
and owns a 65 percent stake in Kaltim Prima Coal operation, or KPC, and
70 percent of the Arutmin mine.
Bumi Bonds
Bumi Resources purchased coal miner PT Arutmin Indonesia from BHP
Billiton Ltd. in 2001. Since then, the company has borrowed to expand
its production.
Bumi’s $700 million of bonds due October 2017 plunged 15.75 cents to 78
cents on the dollar yesterday, according to Royal Bank of Scotland
Group Plc prices.
The company sold the bonds in September 2010 to yield 10.75 percent,
according to data compiled by Bloomberg. The notes yield 17.5 percent,
up from 12.5 percent on Sept. 20, RBS prices as of late yesterday in
Jakarta show.
Bumi said Aug. 28 that PT Recapital Asset Management missed a deadline
to repay a $231 million investment due to Bumi Resources. Bumi board
member Rosan Roeslani is the president director of Recapital and the
funds were part of the dispute between Rothschild and Bakrie.
Bumi CEO Nalin Rathod said in a May interview the company was in talks
to repay debt owed to CIC early as part of a wider plan to reduce
financing costs.
The London-listed company will make a further announcement on the investigation in due course, it said yesterday.
To contact the reporters on this story: Jesse Riseborough in London at
jriseb...@bloomberg.net ; Berni Moestafa in Jakarta at
bmoe...@bloomberg.net
To contact the editor responsible for this story: John Viljoen at
jvil...@bloomberg.netOn Tue, Sep 25, 2012 at 10:12 AM, Puransingh Kochar
<kochar...@gmail.com> wrote:
The shares of both PT BUMI Resources TBK (an Indonesian listed entity)
and BUMI Plc (a UK listed entity) were under pressure, down by 20% and
24%, respectively. BUMI Plc has alleged financial irregularities at its
PT BUMI Resources TBK. By way of background BUMI Plc owns a 29% stake in
PT BUMI Resources.
On reviewing the annual report, it was found that Axis Bank has provided a
credit facility of US$200mn to PT BUMI Resources TBK in August 2011. As
of December 2011, the total amount outstanding was US$186mn. The debt
does not appear to be at the operating company or Special Purpose
Vehicle (SPV) level. The lending seems to be to the Indonesian parent
(i.e. PT BUMI Resources) and to subsidiaries that are not the ones that
hold the key mines.
--
CA. Rajesh Desai