Bumi investors open to Rothschild trade-off

The Indonesian shareholders in coal miner Bumi are open to a compromise that would see financier Nat Rothschild stand down as co-chairman of the company but remain on its board, according to people familiar with the matter.

Publicly, however, the shareholders – the businessman Samin Tan and the Bakrie family – are insisting on pushing through their proposal to drop Mr Rothschild and will launch a charm offensive next week to persuade others to back them.

Chris Fong, a spokesman for the Bakrie family, justified the move against Mr Rothschild by describing him as the “financial engineer” who listed Bumi in London but was no longer needed as co-chairman.

“We value him for bringing us to London, introducing us to the market, but we realise we need to be here and we can’t leave that to Nat,” Mr Fong said in an interview.

A compromise solution, with Mr Rothschild staying on the board, would allow him to protect his 12 per cent shareholding. But some investors see him as a guardian of corporate governance standards at the company and will resent any diminution in his role, analysts say. Mr Rothschild, scion of the legendary banking family, was key in setting up the company and is widely seen as its public face.

One top institutional investor said it would be a retrograde step for Mr Rothschild to become a non-executive director. “Having him there as co-chairman is a significant comfort to investors. If he is just a non-exec director, shareholder protection will be much less and [Bumi’s] rating will suffer.”

The Bakries and Mr Tan, who together own 29.9 per cent of the voting rights in Bumi, said last Friday that they wanted to remove Mr Rothschild and other key directors from the board. They proposed Mr Tan and Indra Bakrie be named as co-chairmen.

Mr Tan will arrive in London next week to discuss the proposals with institutional investors, including funds such as BlackRock and Fidelity, and Bumi’s directors. He will also seek a meeting with Mr Rothschild, whom he has never met. A spokesman for the financier said that no meetings had been scheduled yet.

Meanwhile, Sir Julian Horn-Smith, a Bumi director, will fly to Indonesia next week to speak to the Bakrie family and try to achieve a compromise.

Mr Rothschild’s spokesman said investors “do not appear to share” the Bakries’ and Mr Tan’s confidence about their proposal and that since it was announced five trading days ago, $560m had been wiped off Bumi’s market value and the stock was trading 32 per cent below the level Mr Tan paid for it.

“It’s clear the proposed actions of the Bakries and Mr Tan ... have been disastrous for shareholder value and we expect that investors will make their views clear. We urge the Bakries and Mr Tan to see sense and stop damaging the company. No good will come of this,” he said.

Mr Tan became a shareholder in Bumi last November when his company, PT Borneo Lumbung Energi & Metal, acquired a 23.8 per cent stake in the miner from the Bakries for $1bn – a move that helped the family avert default on a $1.35bn loan.

Under the deal, Mr Tan obtained control of the board of Bumi Resources Minerals, a Bumi subsidiary with interests in Indonesia, Mauritania and Liberia.

About the same time, relations between Mr Rothschild and the Bakries soured after the financier went public with criticisms of management at PT Bumi Resources, another subsidiary.

Ken Allan, marketing director at Borneo Lumbung, denied that the proposals to oust Mr Rothschild were retaliation for his calls for a corporate governance clean-up at PT Bumi.

“There seemed to be some disharmony on the board, a lack of focus,” he said. The idea was to get a board that was “more cohesive, more focused on turning Bumi into a world-class asset”.

Mr Fong said the candidates the Indonesian shareholders were proposing to the board “have experience in Indonesia and come from a natural resources background”. He said he had a “high level of confidence” that shareholders would back the plan.

However, Mr Allan acknowledged he had seen a number of emails from investors expressing concern about the proposals. “They want to know how they would benefit the company and its shareholders,” he said.

Additional reporting by Kate Burgess