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Monday, September 24, 2012

Shares Slump as Coal Miner Bumi Probes Irregularities

Jakarta Globe, Clara Ferreira-Marques, Sarah Young, Janeman Latul & Neil Chatterjee, September 24, 2012

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London. Bumi Plc, the coal mining group controlled by Indonesian investors including the politically influential Bakrie family, has begun an urgent investigation into allegations of “financial and other irregularities” at its Indonesian operations, sending its shares down more than 30 percent.

Bumi, co-founded by financier Nat Rothschild, said in a brief statement on Monday that it had commissioned an independent investigation into the allegations concerning its Indonesian subsidiaries, including 29-percent owned Bumi Resources, Asia’s biggest exporter of thermal coal, which is used in power stations.

Bumi is one of several foreign-owned, London-listed miners that have raised corporate governance concerns among investors over the past year. It has heavily underperformed the mining sector since its re-listing in June last year, weighed down by worries over its subsidiaries’ debts amid weak thermal coal prices, battles between shareholders and a complex corporate structure.

The group’s Indonesian partners tried to oust Rothschild from the board last year after he called for a “radical cleaning up” of governance at Bumi Resources, in what was seen as a sign of his frustration with the Bakries. In a reshuffle at Bumi Plc that followed, Rothschild stepped down as co-chairman, and key investor and coal entrepreneur Samin Tan took the chairman’s role.  

The investigation, to be led by an as-yet unnamed law firm, is expected to include a close look at some $300 million of funds used by subsidiaries and affiliated companies to develop new projects, and also at certain loans extended by Bumi Resources, long a concern for investors.

 Bumi said that “an area of focus” would be the “extensive” development funds of Bumi Resources, most of which were written down to zero at the end of last year, along with one potential mining project held by another subsidiary, Berau Coal Energy.

“We have no knowledge and will await further information before we can comment further,” said Dileep Srivastava, Bumi Resources’ investor relations spokesman.

Bumi, the most traded British mid-cap stock on Monday at 8 times its 90-day daily average, was down 32 percent at 0930 GMT, at 133 pence, off an earlier all-time low of 119.5 pence.

Shares in other Bakrie Group firms also fell on Monday on investor concerns that Bumi’s financial problems would affect related companies. Property developer Bakrieland Development and energy firm Energi Mega Persada both slid 12 percent, while plantation firm Bakrie Sumatera fell 9 percent.

“It’s a major development for Bumi Plc, which now has Samin Tan in control. People have been wondering whether these national coal assets have been mismanaged,” said Jemmy Paul, an equity fund manager at Sucorinvest Asset Management in Jakarta, who manages over $200 million.

But some saw the move as potentially positive.  

“We see this investigation as a positive development, although we feel it does have the potential to bring to light some gross [and potentially criminal] mismanagement of funds which may turn off shareholders in the short-term,” analysts at Liberum said.

“Clearly, given PT Bumi’s high debt levels, the repatriation of funds and focus on core coal mining business is critical.”

Related Articles:

Bumi’s Ex-CEO Hudaya Quits Board as Indonesia Probe Starts

Bumi Starts Urgent Probe of Alleged Financial Irregularities

Bakries Want Rothschild to Leave the Board of Bumi Plc

British financier Nathaniel Rothschild, left, has criticized the
 management and corporate governance at Bumi Resources,
 the Indonesian coal company he is trying to transform into a
 top-tier global miner, the Financial Times reported on
Thursday. (Antara Photo/File)
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