On the afternoon of February 2, Nat Rothschild heard some alarming news from Bumi, the London-listed coal miner he helped to create. The Indonesian billionaires who together owned nearly half the shares in Bumi wanted to kick the City financier off the board.
The next morning Mr Rothschild sent an email, begging them to hold off. He warned that publicly demanding his removal would “destabilise” Bumi and hurt its share price. The investors – the Bakrie family and their partner, the Indonesian mining tycoon Samin Tan – should withdraw their request for a shareholder meeting and take up the demands with the Bumi board instead, he said. His email went unanswered.
Mr Rothschild’s warning proved prescient. Since the statement was released calling for Mr Rothschild’s removal, Bumi’s share price has fallen 15 per cent. Investors worry what will happen to the company if Mr Rothschild, seen by many as the guarantor of its corporate governance, is booted out.
Mr Tan will be in London next week to meet Bumi shareholders, including Fidelity and BlackRock and says he is confident he will secure their support for his plan. One investor says the Indonesian billionaire will face tough questions. “I’ll say to him: you talk about strengthening the board, but you’re taking away the adult supervision,” says the investor.
For Mr Rothschild, the email was a nasty surprise. Even if the dust settles again, the consequences of this particular shareholder conflict threaten to spread far beyond Bumi. As well as bruising Mr Rothschild’s reputation, it has also called into question his entire way of doing business.
In creating Bumi, the financier sought to realise a simple idea. The world was full of highly valuable natural resources companies that UK-based investors would not go near because they were based in risky emerging markets such as Russia or Indonesia.
Mr Rothschild put forward a way of unlocking their value by reversing them into listed vehicles equipped with UK corporate governance safeguards like boards with independent directors. In the process, they would become suitable investments for mainstream funds. The financier’s next target was Genel Enerji, a Turkish company that owns oil assets in Iraqi Kurdistan and is controlled by the Karamehmet family.
But, in practice, that mBakrie family odel has turned out to be fraught with problems. The emerging market companies are often owned by autocratic local families that are reluctant to accept criticism from outsiders, even if they are sitting on their own boards.
“It’s a very dangerous model, unless you’re extremely competent in both business and anthropology,” says Bob Garratt, professor of corporate governance at Cass Business School.
“It’s often very hard to bridge the cultural gap.”
Bumi is hardly the only foreign-owned mining company to find itself in hot water over corporate governance after listing in London.
Last June, four directors left the Kazakh miner Eurasian Natural Resources Corp amid complaints that the founding shareholders exercised powerful influence over the board.
Similar concerns have dogged Indian miner Vedanta, which is controlled by founder Anil Agarwal, and Kazakhmys, controlled by founder Vladimir Kim and the Kazakh government.
Bumi has its roots in Vallar, a cash shell Mr Rothschild established with James Campbell, a former executive at Anglo American. In a July 2010 flotation, Vallar raised £707m to fund acquisitions in the mining sector. Four months later it bought into the coal interests of the Bakries, one of Indonesia’s richest families, and was renamed Bumi.
All was not plain sailing. In the final six months of 2011, Bumi’s shares fell sharply below their flotation price, triggering repayment claims on a $1.3bn loan the Bakries had secured against their 47 per cent stake in the company. In an attempt to avert default, they sold half their shares to Mr Tan for $1bn.
Mr Tan, 46, started as a junior auditor in Indonesia in the 1980s, later training with KPMG in the US. As a university student, he once spent 18 hours in shark-infested waters clinging to a piece of flotsam after a ferry sank in Indonesia. His first brush with the Bakries came in 2000 when as an accountant at Deloitte he helped to restructure the family’s debt. He later set up an investment firm, Renaissance Capital, and bought a coking coal mine. A famously hands-on manager, he is a household name in Indonesia, but is relatively unknown to UK investors.
Soon after the Bakrie-Tan deal, relations between Mr Rothschild and the Bakries soured. The trigger was a letter from the financier criticising mismanagement at PT Bumi Resources, a Bumi subsidiary. The Bakries called it “immature” and “poorly-judged”.
Mr Rothschild sought to engage with Mr Tan after he became a Bumi shareholder. In a series of email exchanges, the two men agreed to meet, and discussed potential venues. Mr Rothschild wrote that he and his family would be on holiday in Myanmar in mid-January and he could visit Mr Tan straight afterwards. But in January, the Indonesian fell silent, according to a person who has seen the email correspondence.
The next communication was the surprise announcement of February 3, calling for an emergency general meeting to push through change at Bumi. The Indonesians proposed replacing Bumi’s chief executive, chief financial officer and three directors, including Mr Campbell. Mr Tan would take Mr Rothschild’s place as co-chairman. Investors were dismayed that the Bakries and Mr Tan went public without first approaching the Bumi board. But they also blamed Mr Rothschild for provoking the dispute in the first place.
“They should all behave like grown-ups and go and sort it out privately,” says one institutional investor. “This is no way to behave if you want your company to be taken seriously as a UK FTSE company.”
Richard Knights, a mining analyst at Liberum Capital, says: “Nat Rothschild and James Campbell were the two who raised the original money for Vallar, so shareholders will question the idea of them no longer being on the board.”
Others appear open to a potential compromise, with Mr Rothschild stepping down as co-chairman but staying on the board. “It’s fine if Nat has some stature and is driving decisions on the board,” said one shareholder.
Mr Rothschild himself is forthright in rejecting the Bakrie-Tan plan. It has been “disastrous for shareholder value and we expect that investors will make their views clear,” he said in a statement.
“We urge [them] to see sense and stop damaging the company.”
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