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January 14, 2011 5:06 pm
On an overcast morning last December at the Four Seasons Jakarta, nearly two-dozen dignitaries arrived at the outlying steel gates. Security agents, armed with M-16 rifles, moved diligently along the sides of the assembled cars checking for explosives via a curved mirror. Waved on, the visitors ascended the driveway then walked to a basement room. The setting chosen to announce one of Indonesia’s biggest ever resource deals resembled a home counties conference centre: sliding walls, beige patterned carpet and a prefabricated bouquet of roses sitting on a makeshift desk next to the projector. Only the air conditioner whirring overhead, battling 34°C heat outside, gave a clue as to the tropical location.
Like his surroundings, the blue-suited speaker – who described his family business as “banking and wine” – kept a low profile, gliding in without greeting, the only indication of his presence a discreet sign in the lobby directing invitees to the Vallar presentation. The journalists – clustered around white-clothed tables, their chairs draped with creme-coloured organza in what resembled wedding preparations – took out pens and notebooks. Nathaniel Rothschild, 39, and the future Baron Rothschild, laid out his plans to create one of the world’s biggest coal producers from Vallar, a £707m “cash-shell” he had founded six months earlier. In so doing, he hopes to make his mark on the considerable family name.
Twenty-four hours later, Rothschild stepped off his jet to inspect Kaltim Prima Coal (KPC), the world’s largest thermal coal-producing mine. Accompanying him were the FT, his closest adviser and a recent friend: a fund manager with a metal ear stud and an Elvis-style quiff. “We met at a party in Wiltshire,” he said by way of explanation. The present environs could not have been less temperate. Sweating on a remote jungle airstrip on the island of Borneo, Rothschild cut an unlikely figure. Dressed in a monogrammed shirt and suede shoes he made a beeline for the air-conditioned welcome room. It was the closest Rothschild had been to any of the assets for which he had paid $3bn four weeks earlier.
Sitting down to a buffet lunch, which he didn’t touch, he explained why. “Coal mines all look the same, they’re just bigger or smaller.”
In the Rothschild case, they’re definitely bigger. Kalimantan, the mining region located on the Indonesian part of Borneo, is central to a new Great Game for Asia’s energy resources. Abundant coal deposits – formed when rotting plants were pressed into long, hard seams 200 million years ago – have made it ground zero of the global coal industry.
As a result, the island’s topography has been transformed. Entire hillsides have been razed and new valleys dug to expose giant crevices of black carbon. In turn, new forest has sprung from the earth dumped nearby, much of it adjoining craterous blue-green lakes formed from collected rainwater. In some cases the fissures in the earth are so vast that the rising water vapour coalesces above them to form clouds. From Rothschild’s helicopter, trucks can be seen carrying 330 tonnes of coal each, scurrying up and down like beetles, ferrying their load to steaming knolls where colossal steel probosci scoop and deposit it on to a conveyor belt. From there it is taken to the end of a pier extending 2km out to sea where half-a-dozen ships bearing Korean and Hindi lettering wait to deliver the fuel to East Asia’s insatiable furnaces.
In the process the island has become rich, if at the cost of widespread deforestation. From the air, you can spot brown-black earth foundations being dug by the island’s local nouveaux riches to support their California-style condos.
The KPC mine is, according to the manager, the “biggest earthmoving operation in the world”, shifting a billion tonnes of dirt each year. It also forms the basis of Rothschild’s plans to create a new “international coal champion”. The new company hopes to produce 140m tonnes by 2014, which would make it the world’s largest producer of thermal coal. The plan is to list it on the FTSE 100 by this summer.
“We have global aluminium companies, global gold companies but no international coal champion. It makes sense to consolidate the coal industry,” said Rothschild.
His partners in ambition are Indonesia’s Bakrie family, a business dynasty in their own right, whose debt-ridden Bumi company owns the KPC coal mine and is now the largest single shareholder in Vallar. In fact, Vallar will be renamed Bumi Plc – or “earth” in Indonesia’s Bahasa language – after a share exchange later this month. The Bakries will take a 43 per cent stake and their business partner, Rosan Roeslani, a local private equity tycoon, 25 per cent. That leaves Rothschild with an 11 per cent stake in his own London-listed company.
“Let us be under no illusions – the Bakrie family and Roeslani will be the biggest shareholders,” said Rothschild, who put $180m of his own money into what he described as “a merger” and stands to make hundreds of millions of dollars. “You have to make hay whilst the sun shines.”
Trading on a name
Given his descent from a family that was at the forefront of Europe’s New World expansion, in a sense Rothschild’s venture to make his own name in Asia is well-trodden ground. A century earlier at the same location the family bank played a key role in the birth of south-east Asia’s oil industry – a legacy today preserved in the christening of the Amata pseudextensa Rothschild, a female tiger moth ubiquitous in Borneo’s undulating rainforest.
In the late 19th century, British engineer Marcus Samuel landed on the island’s east coast with a single aim: to find an alternative to the Rothschilds’ Russian oil. Short of equipment and relying on imported Chinese coolies – the local headhunter tribes were not eager for wage labour – he cut a four-mile path through virgin jungle to a place where, reportedly, oil seeped up from the ground. The “Black Spot”, as the site became known, formed the base for the Shell Transport and Trading Company, a precursor to Royal Dutch Shell, in which the Rothschilds became the largest shareholders in 1912.
It’s hard to square the air-conditioned clubhouse and multibillion-dollar infrastructure of Rothschild’s venture with that of the intrepid Samuel. Yet if the risks from Rothschild’s point of view are less clear then, conversely, the attraction to his Indonesian partners is equally obvious. It can be summed up in a piece of advice given to Samuel by his business partner a century ago as they debated letting the Rothschilds in on their new venture: “If this chance has slipped, we shall never get it again. Once we are combined with the Rothschilds everybody knows that we hold the future, but we cannot do without their name.”
Nathaniel Philip Rothschild (more commonly known as Nat) is the youngest of four children and the only son of Jacob Rothschild, 4th Baron Rothschild. He is also the bearer of a name that links him indelibly with the 19th-century founder of the eponymous family bank: the buccaneering Nathan Mayer Rothschild.
Established in London via a Frankfurt ghetto, Nat’s Georgian ancestor built his fortune by shipping bullion to Wellington’s army in Portugal and Spain. In doing so, he cemented an image of savvy financier which has been associated with the family ever since. Legend has it that Nathan, on receiving news of Napoleon’s defeat in advance of the British government, sold stocks to cause market panic before buying them back on the cheap.
Despite such an auspicious heritage – or perhaps because of it – Nat Rothschild’s early years were problematic. Educated at Colet Court, a London private school, alongside the current chancellor, George Osborne, Rothschild moved on to Eton where he was remembered as a quiet boy who seemed to resent authority.
Persistent troublemaking saw him assigned to a schoolmaster whose job it was to try to tame him. It didn’t work. Moving on to Oxford, where he read history at Wadham, Rothschild is remembered for driving around in a blue Porsche and throwing lavish parties. He was also a member of the hard-drinking Bullingdon Club, an arcane ¬society whose establishment members – including the current prime minister, David Cameron – were infamous for vandalising the ¬restaurants they dined in.
There were several minor scandals. These included a year-long driving ban after being pulled over and failing to provide a specimen for analysis to the police and allegations made by an escort that he ordered drugs and call girls to Waddesdon Manor, the family’s stately home in Buckinghamshire, which Rothschild strongly denied.
He went straight to work after graduating in 1994 – first at Lazard Brothers, a private bank that competes with the Rothschild bank, and then Gleacher Partners, the New York investment advisers.
The circumstances of a marriage in his early twenties in Las Vegas to Annabelle Neilson, a model he met on a beach in India, did little to change his wild-child media image. The relationship ended after three years with a confidentiality agreement and an out-of-court settlement.
In his mid-twenties, Rothschild performed a U-turn of sorts, partially precipitated by the suicide of his uncle Amschel in a Paris hotel suite in 1996. Tragedy dogs the Rothschilds: his cousin, Raphael de Rothschild, died of a heroin overdose on the streets of New York five years later.
Nat himself relocated to New York from London, but swapped alcohol and partying for days dedicated to networking and business. Like his ancestors, money has since come to define his life.
After swapping Cristal for Coca-Cola, Rothschild joined Atticus, a hedge fund named after Atticus Finch, the lawyer in To Kill a Mockingbird, where he worked feverishly for the next decade. At its peak it managed $23bn until its main fund was disbanded in the credit-crunch amid heavy losses. Rothschild maintained those investors who got in early “did very well”.
Peter Munk, the octogenarian chairman of Barrick Gold, the world’s biggest gold producer, first met Rothschild in his mid-twenties when the latter’s reputation was still more playboy than business patron. He did so because he was asked to by Lord Jacob, Nat’s father and a close friend who was concerned about his son’s “issues”. Munk ended up becoming a sort of surrogate father figure for Rothschild in the investment world and persuaded him to move to Klosters, the Alpine ski resort in Switzerland where Rothschild is now based.
“It began as a favour and yet I ended up becoming an investor, a follower of his career,” said Munk, who described Rothschild as one of the most internationally mobile businessmen he knows, something attested to by the 700 hours a year that he spends on his private jet, “N4T”.
Along the way he courted politicians and business tycoons, his surname usually enough to open closed doors. Yet despite being a friend to the likes of Lord Mandelson, the former Labour minister, and Russian oligarch Oleg Deripaska, Rothschild prefers, like his father, to keep a low profile.
This facade has cracked just once – in 2008 – when Rothschild became angry with his schoolboy contemporary George Osborne, then in opposition, for breaching the confidentiality of a summer party. Revenge was swift: Rothschild wrote a letter to The Times alleging that Osborne had sought a donation from Deripaska while on the Russian’s yacht – an allegation which Osborne vehemently denied.
On a freezing night in mid-November I met Rothschild at the family owned Spencer House, the last Georgian mansion to overlook Green Park in London. Next door are the Vallar offices, an unremarkable former town house given to the company by a hard-up client.
In an austere oak drawing room, surrounded by classical portraits, and after two days without sleep, Rothschild sat with his gangly frame hunched forward as if the weight of the family expectations lay on his shoulders. He had just flown in from Singapore where his multibillion-dollar deal – for three weeks based only upon a handshake – was formally sealed. “I met the Bakrie family face to face a month ago; so one has to be decisive when opportunities present themselves,” he said in his softly spoken voice – a characteristic which comes across as alternately shy and aloof.
The original Vallar proposal was nearly a father-and-son double act. RIT Capital Partners, the investment trust owned by Nat’s father, Lord Jacob Rothschild, had some $2bn in capital. Nat wanted to invest it in his position as successor at RIT – a de facto stepping down for Lord Jacob.
“He didn’t go for it – he didn’t want to retire,” said a person who knows both men. “So Nat said, ‘I’ll raise the money on my own then.’”
But, having just climbed out of the worst commodity depression in a generation, capital was scarce, even among investors of Rothschildean calibre. So Rothschild opened his considerable black book.
“Nat is unique in his international contacts – there’s no one he doesn’t ski, sail or party with,” said Munk, who added that weeks before the Vallar deal Nat was climbing mountains in Nepal with the head of the China Investment Corporation, the country’s sovereign wealth fund.
As a result Vallar raised £707m in a stock market flotation last July, a war chest with which to go shopping for assets.
At Rothschild’s side during this coup was Daren Morris, a former industrials banker at UBS who races catamarans around the Isle of Man in his spare time. He is Vallar’s business partner – along with the company’s co-founder James Campbell, former head of coal at the mining giant Anglo-American – in a relationship with Rothschild formed during their days flat-sharing at Oxford.
One of the company’s first investors was a Russian friend who lives near the Israeli embassy in Kensington, London. Not unlike a couple of door-to-door salesmen, Rothschild and Morris turned up at the Russian’s house and, after talking through a proposal for a natural resource fund, walked away with a £50m pledge.
Other investors included the Abu Dhabi Investment Authority and Schroders bank; the latter, according to someone familiar with the situation, after Mr Rothschild paid a surprised Bruno Schroder, the owner, a visit while he was lounging on a sunbed in the Turks and Caicos Islands. Mr Rothschild said he solicited the investment from Schroder’s “head of equities”.
“Chief executives love that approach, striking while the iron’s hot,” said Morris. “Nat will call an investor up and ask, ‘Where are you? Doing business in China? Will you be there tomorrow? Right, see you there then,’ and he’s off.”
Over the summer of 2010, N4T had a busy flight schedule. With the money raised, Rothschild went in search of the asset that would make his name, descending on the runways of gold, iron ore and coal mines in Brazil, Colombia, Russia and Canada as well as the financial centres of four continents.
For reasons of both economy and ambition, Vallar was looking to buy on a grand scale.
“I wanted to do a transaction sufficiently large so that the shareholders of Vallar have a platform on which to go and build a company which is a FTSE 100 entrant. We will be,” said Rothschild.
There was an Oedipal element too. More than Rothschild’s desire for money is the wish to forge a legacy.
“He wants to make a mark as the Rothschild of his generation,” said Sir Julian Horn-Smith, a former chief executive of Vodafone and currently a non-executive director of Vallar.
Ever since Atticus closed, the jury of executive opinion had been hung on whether Rothschild would emerge from the shadow of his father. “After Atticus Nat felt his reputation was still a question mark … he felt like he didn’t get the credit for its early success. Vallar is unequivocally his,” said one reliable source. When Lord Jacob hadn’t acceded to his son’s earlier proposal, Nat had managed to raise his own money. Now he had to prove what he could do with it.
Then, in late October, Vallar got a phone call from Ian Hannam, a banker at JPMorgan well-known in the natural resource sector.
“There are some coal mines in Indonesia you should look at,” said Hannam. The first was Berau, Indonesia’s fifth-largest coal producer. A 35 per cent stake was being sold by Roeslani, now a partner with Rothschild, to pay off a loan from Credit Suisse. The second bigger mine was owned by the controversial Bakrie family through Bumi Resources, one of Indonesia’s biggest companies and also one of its most debt-laden, dogged by accusations of tax evasion and corporate misgovernance.
Fortunately Hannam knew both owners. During the Asian currency crisis of the late 1990s, he had advised the Bakries on reconfiguring their business empire and he knew that the family had been something of a patron to Roeslani, who had acted as an adviser to them on several previous business acquisitions. Perhaps Vallar, Hannam suggested, with its golden carrot of a London listing, could help out both companies?
Business with the Bakries
Shortly before the trip to the mines, I entered a basement wine bar in downtown Jakarta. The scene looked like an east Asian adaptation of Miami Vice. Beckoning me in was the new chairman of Vallar, Indra Bakrie, the younger brother of clan head Aburizal and the middle of the three brothers who run the family businesses. Surrounded by dimly lit bottles of Meursault and flanked by two consiglieri he held court from an oversized armchair, his stout body sporting a floral Indonesian shirt.
Indra is one scion of a family business that began when his father traded pepper and coffee under Dutch colonial rule in the 1940s. The resulting conglomerate continued to expand into virtually every sector of the economy under Indonesia’s former dictator, Muhammad Suharto.
“During Suharto the government was criticised for giving too much power to the Chinese business community [so] Suharto used Bumi as a symbol of the ‘Indonesian’ businessman being successful. It was a balancing act, Bumi was a counterweight,” said Sofjan Wanandi, head of a Jakarta-based business lobby group who has known the Bakrie family for four decades.
Since Suharto, the Bakrie bank balance has suffered. The 1997 collapse of the rupiah nearly bankrupted the empire. An economic boom after 2000 allowed the family to re-accumulate a majority stake and invest in a new headquarters: a phallic tower of steel and glass rising irresistibly from Jakarta’s business district.
Then came the subprime lending crisis. Hundreds of millions of dollars of value were wiped off the Bakrie companies, sparking fears that they were again teetering on the brink of bankruptcy. Their current debt stands at some $4.4bn.
Enter Rothschild. Indra Bakrie, a man whose family is decried by critics as “untouchable” and whom supporters liken to “the Indonesian Rothschilds”, is remarkably frank about the Vallar deal. “Everybody knows the debt that Bumi has is not a cheap deal with the lenders. Vallar’s job is to try to decrease [our] debt, decrease the cost of funds and to help the capital expenditure.”
“When we met the first time, what I see from Nat Rothschild, for someone to go IPO (initial public offering) without any assets and get £770m – I thought this must be somebody,” said Bakrie. “So my brothers and I decided this is what we’re looking for.”
Others agree that this deal adds to the Bakries’ considerable clout. “He (Aburizal Bakrie) is a kind of shadow president [of Indonesia] and the Vallar deal makes his shadow bigger,” said Drajad Wibowo, an outspoken government critic and deputy head of the opposition National Mandate party. “Maybe, if one day he becomes president, he will have to thank the Rothschilds.”
The new Vallar deal may also help to rehabilitate the Bakrie reputation. The 2006 Lapindo mudflow disaster, in which a drilling hole operated by the family oil and gas company began gushing noxious mud and gas, displaced tens of thousands of people.
More recently, the Bakries have faced allegations of dodging more than a billion dollars in taxes as well as corruption charges against three Bakrie-owned businesses, including Bumi. The Bakries deny the charges and claim their businesses are among Indonesia’s largest corporate taxpayers.
“The perception about Bakrie is bad; I talked to the family and said we need to rectify this,” Indra Bakrie said, explaining that Bumi had been looking to list on a western market for three years.
“For me as a Muslim [the deal] is God’s will. We have the assets, Rothschild has the money – it’s a marriage just like that.”
Next stop China
Rothschild closed the deal with the Bakries after meeting them once in Los Angeles and again in Singapore – two meetings spread over just three weeks. “It will raise eyebrows in the City,” said one London-based mining analyst of the partnership. Another added that Bumi had governance issues “across the board”.
Back at the KPC mine Rothschild was unconcerned. He told me that speed was the reason for the deal’s success. “I think the fact we’ve done something quickly is heartening to the people who put money in Vallar.” He was also sure he and the Bakries would get along fine, regardless of the size of their respective shareholdings or alleged misdemeanours. His attention turned back to his BlackBerry where he was busy trading texts with Niall Ferguson, the historian and biographer of the Rothschild family, who was staying at his house in Switzerland.
Soon after lunch, having spent no more than a few hours at the site, Rothschild returned to his jet, leaving the remaining analysts to number-crunch in his absence. With his entourage he flew to Bali to stay at Roeslani’s villa. “It rents out for $15,000 a night and is popular with celebrities and former dictators,” said one colleague. From there it was on to Beijing and a meeting with the China Investment Corporation. Treading in the footsteps of his predecessor Nathan, he wanted to discuss finance for a possible $1bn acquisition, the ink having barely dried on the Bumi deal.
“His pleasure is making money and Vallar is his vehicle for doing it,” according to one of Rothschild’s friends, who also invests with him. “Some people are saying he may have bitten off more than he can chew – but Nat is here to make a mark. It’s a big call.”
This story is subject to a correction and clarification.
Christopher Thompson is an FT UK companies reporter and Anthony Deutsch is Jakarta correspondent
A banking dynasty
The Rothschild dynasty was founded by Mayer Amschel Rothschild in the Jewish ghetto of Frankfurt in the late 18th century, writes Richard Dennis. What began as trading in coins and commercial papers soon turned to private banking. Mayer sent four of his five sons to establish banks in London, Paris, Naples and Vienna.
His fourth child, Nathan Mayer Rothschild, founded the London branch in 1809 and became fundamental in the Napoleonic Wars when, in 1814, he was commissioned by the British government to raise funds. This involved co-ordinating agents and couriers, and transporting gold and information around Europe.
The next generation of Rothschilds continued to refine the family business. Most notable among them was Lionel Nathan Rothschild, son of Nathan, who became the first Jew to be elected to the House of Commons, in 1858. In 1875, he was able to raise £4m within hours to make the British the principal stockholders in the Suez Canal. His son, Nathan Mayer Rothschild, became the first Jewish member of the House of Lords. Since then, the Rothschild dynasty has been responsible for funding such commercial operations as the creation of diamond dealers De Beers in 1887, and the London Underground in 1926.
Jacob Rothschild (b. 1936) was chairman of N.M. Rothschild before retiring in 1980. Since then he has chaired the National Heritage Memorial Fund, providing £1.2bn in lottery grants and became deputy chairman of BSkyB. In 2009 his personal fortune was estimated at £360m by The Sunday Times Rich List.
The Rothschild family interests are not restricted to banking. Dame Miriam Louisa Rothschild (1908-2005) was a natural scientist, vegetarian and teetotaller who became a leading authority on fleas – The Rothschild Collection of Fleas is part of the Natural History Museum collection.
One of the most notable family eccentrics was Phillippe de Rothschild (1902-88), who was a racing driver (winning the Burgundy Grand Prix in 1929), a film producer (making one of the first French “talkies”) and vineyard owner. He took over the Château Mouton Rothschild vineyard in the 1920s and had huge success with it.
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