Bumi – is it safe to go back in the water?

2 mins. to read

From today’s FT –

The board of Bumi Plc is weighing up severing ties with one of its Indonesian businesses as part of a restructuring aimed at reviving investor confidence in the controversy-hit London-listed coal miner.

Bumi said on Monday that it had asked for an independent investigation, to be carried out by law firm Macfarlanes, into alleged financial irregularities at PT Bumi, in which it has a 29 per cent stake.

The inquiry is the latest blow for Bumi, the vehicle part-owned by financier Nat Rothschild that has come to epitomise the risks investors face when putting money into emerging market entities and has tainted the model of reversing far-flung resources companies into London-listed shells.

The board hopes to have a preliminary report from the law firm “within weeks”, people familiar with the matter said, which is expected to focus on whether money supposedly spent on development projects at PT Bumi was invested on the ground.

Bumi’s board has previously discussed ways to take control of PT Bumi Resources, including through a merger of that company with Berau Coal, its 85 per cent owned Indonesian coal subsidiary.

However, the board is also considering ways to make a lasting split from the troubled Indonesian company and to focus on preserving the value of its Berau holding.

“The bottom line is that we have high quality, valuable Indonesian coal assets and we have been clear about delivering on high standards of corporate governance,” said Nick von Schirnding, head of Corporate Affairs at Bumi Plc. “We have clearly had our challenges and structure remains one of the key issues we are looking at – something we need to resolve over the next few months and then deliver on a simplified strategy going forward.”

A deal to separate Bumi Plc from PT Bumi would be complicated, given the challenges facing the heavily indebted Indonesian group and the cross-shareholdings between the various companies.

Options include spinning out the stake and selling it to other investors or a third party, or distributing it to shareholders in Bumi Plc. Another strategy could involve swaps of stakes in the London group and its Indonesian namesake held by the Bakries and Samin Tan, Bumi PLC’s chairman who bought half the Bakrie’s stake in Bumi in October 2011 as the family struggled to repay a loan.

While cutting ties with PT Bumi is one route being debated, no way forward has been agreed, people familiar with the matter cautioned. Some directors might prefer to focus on ways to take control of PT Bumi, especially when the collapse in thermal coal price has put the company under pressure.

Editor take – it could be that per the old saying re “buy when there is blood on the streets (in this case blood coloured blue!) is appropriate here. With a current market cap of just under £300m and a reputation at stake in Nat Rothschild’s stake, any divestment of the 29.9% stake in Bumi could yield as much as the current market cap, and so leaving the, as yet, unscathed PT Berau for free.

Natural buyers are of course the Bakries and Samin Tan. Alternately, if the Bakries are pressured by their lending banks over the collateral they pledged in Bumi stock to settle the loan then what chance Tan/Natty look to take this? 

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