The Bumi scandal reaches break-up point
Published by MAC on 2013-02-26Source: Statement, Morning Star, Evening Standard
London Calling on a tale stranger than fiction
A year ago, London Mining Network identified Bumi plc as a glaring example of abject failure in corporate oversight by Britain's Financial Services Authority (FSA).
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| At the Bumi EGM, February 21st, London. Photo: DTE |
By that point, the FSA had failed to prevent some of the world's most offensive mining companies from listing on the London Stock Exchange (LSE).
A comparatively late arrrival (registered on the LSE in 2011) Bumi now proved to be the worst of a distinctly bad bunch.
In early 2012, the "voices of dissent" went largely unheeded - even when eloquently expressed at Bumi's first annual general meeting and reported in the national press. See: From Burke to Bumi - a UK-Indonesian scandal
However, as the company slid from scandal to scandal, "losing" some US$1 billion in investor funds along the way, the government finally began to act - though far too hesitantly and and too late.
So did Bumi's directors, faced with a collapsing share price as they tussled for control of what many observers regarded as a sinking ship, by resorting for rescue to a raft of dodgy investors at the eleventh hour.
Last week, venture capitalist and hedge funder, Nat Rothschild, made a bid to take over Bumi from his former partners, Indonesia's Bakrie brothers, at an Extraordinary General Meeting in London.
Rothshchild lost the overall vote, and with this any leading role in the company.
Below we reproduce some coverage of the whole sorry event: one reflecting disgraceully on just about every major player.
It paints a scarcely-credible picture of sordid in-fighting among a dissolute band of males (No women were involved in the making of this particular drama, though many have been harmed by Bumi's operations on the ground).
In almost any other line of business, some of these men would have been out on their necks long before now, if not arraigned before a court.
What next - anyone care to guess?
We don't pretend to predict what path Bumi plc will now follow - nor, it seems, does any other business commentator.
However, arguably the only way of redeeming the FSA's besmirched reputation, because of this affair, is for it withdraw what's left of Bumi from its London listing.
Nonetheless, this mustn't happen before the outfit has coughed up those "missing millions" and set them to work in closing and thoroughly rehabilitating its huge Kaltim Prima coal mines in Indonesia.
It must also compensate hundreds of families and workers who have suffered from a decade of Bumi's derelictions.
Anything less would be criminal.
[London Calling is published by Nostromo Research. Comments in this column are the sole responsibility of the author. They may be quoted, in whole or in part, under a Creative Commons licence]
James Ashton: The City's most valuable asset is its reputation
Being open to international business does not mean the Square Mile should have to sacrifice its standards
James Ashton
London Evening Standard
21 February 2013
The Honourable Artillery Company knows a thing or two about great battles. As the oldest regiment in the British Army it was incorporated by King Henry VIII, sent troops to oppose the incoming Spanish Armada and played a significant role in both sides of the English Civil War, as well as the First and Second World Wars.
Today its headquarters in the City played host to another battle which has captured imagination across the Square Mile. Less bloody, though, and far less honourable than the events that coloured its past.
The HAC was chosen as the location for today's clash between banking scion Nat Rothschild and the Bakrie family. Rothschild's name precedes him by about 200 years thanks to his antecedents' powerbroking for the rich and famous and the Château Lafite Rothschild wine estate, whose fruits are now being supped by Chinese connoisseurs. The three Bakrie brothers are far less well known, but are huge in Indonesia, where their interests straddle agriculture, media and mining as well as being entwined with politics.
The spat, which has been running since last autumn, centres on the control of a mining company called Bumi. Its twists and turns make the Schleswig-Holstein question look black and white.
From these increasingly bad-tempered exchanges, it is hard to divine the winner. Whatever the outcome tonight, though, the loser is clear: it is London, and once again its reputation as a premier financial centre.
To recap the saga: Rothschild used his name to raise £700 million from backers, including £100 million of his own money, with the promise that he would find a company to invest in. An alliance was struck with the Bakries to swap a stake in their coalmining business for shares in Rothschild's holding company. Everyone was happy: the deal gave the Indonesians an easy path onto the London market and let Rothschild cash in on what he viewed as an undervalued company. For a time, it was calculated he had become the richest Rothschild of all, even eclipsing his father Lord Jacob, the septuagenarian éminence grise.
Everyone was happy, that is, until a spectacular fall-out. Rothschild accused the Bakries of weak control and money going missing somewhere down the line. They denied any financial irregularities. He left the board but began plotting a return.
The Takeover Panel, Serious Fraud Office and Indonesian authorities have weighed in. Unsurprisingly, Bumi's shares slid. Today's episode, a meeting at which Rothschild was trying to oust 12 of Bumi's 14 directors and replace them with his own team, is nowhere near the end of the tale. Both sides have vowed to sue each other.
This incident serves as a reminder that London remains at the centre of things. Rothschild could have taken his listing to Singapore or Hong Kong. Would that he had. But it was London that afforded the Bakries real cachet for their business.
It means that as their relationship has crumbled, legions of advisers have benefited. Accountants, lawyers and public relations men are licking their lips at the work that has come their way. Corporate marriages are lucrative but divorces, especially when there are well-honed reputations to protect, even more so.
For many of those City firms, dealings in far-off lands are their meat and drink. About half of the work carried out here by a typical Magic Circle law firm will be from overseas because our rule of law is one of our most exportable commodities. The question is whether London should welcome this type of company and all the baggage that has come with it.
What is clear is that Britain is open for business, a message that David Cameron is once again banging the drum about on his trade mission to India. Our open markets, compared to the protectionism of countries like France or Canada, have seen a string of takeovers of flagship companies when debt was cheap. That openness has also worked in the other direction, with companies flocking here from Mexico and Kazakhstan to sell their shares and boost their respectability.
Once again, it has been good business, especially for the investment bankers. Better here than somewhere else, especially if London is to preserve its reputation as an international hub for commerce offering deep pools of capital.
Yet when a great trading centre begins to take on the hues of the lawless Wild West, it is time to worry. On top of the colourful companies admitted to trade here, London has suffered the most collateral damage from the Libor interest rate rigging scandal, even though much of the activity took plac e in New York. And despite its makeover as a "go-to" bank with great principles, Barclays' Middle Eastern fundraising a few years ago still threatens to cast a pall over one of our flagship financial institutions.
In the case of Bumi, Rothschild admits he didn't do enough homework on his new partners. Nor it appears did the luminaries that fill its boardroom such as former British diplomat Lord Renwick and Sir Julian Horn-Smith, the Vodafone veteran who helped to turn the mobile phone company into a global player.
Their judgement has been brought into question just as Sir Richard Sykes found himself dragged into a row over a mine in the Democratic Republic of Congo when he sat on the board of Kazakhstan's Eurasian Natural Resources Corporation.
Regulators have been slow to grasp the situation. Only latterly did the Financial Services Authority propose greater protection for investors in companies that are dominated by a single large shareholder and promise to look at tightening governance.
Yet after all the shouting and legal wrangling is over, the main players can retreat to Jakarta or Paris or pick up their fishing rods again. It is London that will pay the price in the long term if its kite-mark for quality and trust is tarnished.
Nat Rothschild defeated in Bumi showdown
Clara Ferreira-Marques & Sarah Young
Reuters
22 February 2013
LONDON - Financier Nat Rothschild, co-founder of Bumi Plc, lost his bid to oust the coal miner's board on Thursday, after a public showdown with his one-time colleagues and Indonesia's influential Bakrie family.
Shareholders elected to keep Bumi's chairman and chief executive and most of the current board, rejecting 19 of the 22 proposals made by hedge fund veteran Rothschild, scion of the banking dynasty.
The Bakries and Rothschild struck a deal in 2010 to offer investors promising Indonesian mining assets through a London company protected by UK market rules. Rothschild said at the time he wanted to make shareholders "two or three times their money", but they have lost heavily as the partnership soured, thermal coal prices tumbled and the two sides traded allegations of misuse of funds and illegal phone hacking.
The allegations of financial wrongdoing were not substantiated by a legal firm that probed them, as it said key parties were unwilling to be interviewed or provide information.
Thursday's vote, following months of sparring, moves attention to the next step in ending one of London's messiest corporate battles - the divorce with the Bakries and separating out part-owned Bumi Resources, which the Bakries had brought into the company.
The dispute has reached into the world of politics, too, involving two rival candidates for Indonesia's 2014 presidential elections.
Rothschild's own bid to rejoin the board, as executive director, received the least support from voting shareholders. Only 37 percent of those voting backed him.
Rothschild, who says his only aim is to improve Bumi's dismal share performance, called the board's victory "pyrrhic", pointing to the fact a substantial proportion of their support came from the company's heavyweight Indonesian shareholders, including the Bakries.
He said in a statement issued after the vote that the current independent directors had lost the confidence of minority shareholders and should resign.
The split with the Bakries, he said, would be a test.
"The actual split requires 75 percent shareholder support (excluding the Bakries)," he said during Thursday's meeting. "The board lacks the moral authority to go through with it."
Rothschild had wanted to oust 12 of 14 board members and bring in a new team that included himself, proposals which he said would have helped draw a line under past dramas and revive a share price languishing at a third of its June 2011 level.
The current board, though, says it has already agreed a split with the Bakries - something all sides agree is critical - in a more than $600 million deal that would have been jeopardised if Rothschild returned to the board.
Bumi said in a statement that directors will now prioritise the separation, a cash deal which also sees Bumi exit its minority shareholding in Bumi Resources, and will shrink the current board. A new chairman will replace the incumbent, Bakrie partner Samin Tan.
Voting
Rothschild's campaign was damaged by a last-minute stake sale by a major Indonesian investor earlier this week, freeing up shares whose voting rights had been frozen by regulators.
Indonesian investors hold 30 percent of the voting rights. The impact of the freed shares - an extra 10 percent of total shares - swung the pendulum against Rothschild, who together with his declared backers held roughly 30 percent.
The votes, totted up after the meeting in a central London military hall, showed that the defeat of Rothschild's plan was not entirely comprehensive.
While voting shareholders chose to keep Samin Tan and Bumi's chief executive, Nick von Schirnding, Rothschild was successful in his plan to remove two directors, including Bakrie ally Nalin Rathod. One of his proposed additions, diplomat Richard Gozney, will join the board.
Disastrous
Rothschild, the 41-year-old hedge fund veteran known for his bulging contact book, won investors' plaudits when he set up Bumi with the Bakries.
"To me, this idea of an Indonesian company married to an English (board) had the makings of a brilliant success," small shareholder, pensioner Michael Napier, said on Thursday, before asking whether the two might bury the hatchet.
Tensions came to a head after Bumi announced an independent investigation into potential wrongdoing at its Indonesian subsidiaries. Weeks later, the Bakries said they wanted to draw a line under the London adventure and pull out their assets.
All sides agree Bumi has been a disastrous foray. Its shares are down some 66 percent since a 2011 listing - even with a recovery since the start of the year - as boardroom battles added to the impact of falling thermal coal prices.
Many investors suggest the coal venture has bruised London's reputation as well as that of Indonesia. While the London market has long seen successes and failures, Bumi has highlighted corporate governance failures elsewhere in the sector, and it contributed to regulators' decision to tighten listing rules.
Adding to the complexities, Thursday's vote also pitted the families of one Indonesian presidential candidate against another. Aburizal Bakrie, patriarch of the Bakrie family, is running for the Golkar party in 2014 elections, while the brother of Rothschild backer and would-be board member Hashim Djojohadikusumo - former general Prabowo Subianto - is a rival.
"It is not personal at all," Rothschild said in the hall as votes were counted, brushing aside months of bitter recriminations. "I only have one aim - and I have around 36 million shares in this company, together with my cousin - I want the share price to appreciate."
Rights campaigners target mining giant
by Paddy McGuffin, Home Affairs Reporter
Morning Star
21 February 2013
Human rights and green campaigners challenged mining firm Bumi outside its AGM [actually it was an EGM] in London today over alleged rights abuses, corruption and environmental destruction.
While shareholders squabbled and voted on plans by director Nat Rothschild to oust the current board, War on Want said the real losers of the outcome were Indonesians.
"The Indonesian people have reaped only negative consequences from Bumi's coal extraction - human rights violations, abuse of workers, environmental destruction and virtually no benefit to the Indonesian economy," international programmes officer Patrick Kane said.
Leading mining union ICEM alleges that Indonesian security forces, serving the firm's interests, severely beat 20 striking workers in March last year in Bumi's Kaltim Prima coal mines.
Bumi plc is led by Indonesian businessman Samin Tan, backed by the Bakrie family and Bumi founder-turned-director Nat Rothschild.
Allegations of corruption, bribery and tax evasion have been levelled against the Bakrie family and Bumi Resources, which is part-owned by Bumi plc.
Bakrie family subsidiary PT Lapindo Brantas has also been accused of failing to pay adequate compensation after allegedly causing a mud flow disaster in East Java in 2006 which killed 14 people and displaced 30,000.
London Mining Network co-ordinator Richard Solly urged: "Investors concerned about Bumi's share price and the dodgy dealing would do well to show similar interest in the way the company deals with human rights and environmental issues.
"It is not only investors who are suffering from the company's cavalier behaviour. It is workers, communities and ecosystems."
Down to Earth campaigner Andrew Hickman said the Bumi affair had "revealed the bankruptcy of claims by large shareholders to be able to police their own activities."
The government rejected a proposed amendment to the Financial Services Bill in 2012 to strengthen regulation of mining companies listed on the London Stock Exchange.
"Surely, it is now time for the government to act," he said.
Bumi blasted over human rights abuse allegations
By Rob Davies
Daily Mail
21 February 2013
Allegations of human rights abuses will add another ugly chapter to the Bumi saga, as investors prepare to vote on Nat Rothschild's plan to oust the board.
Anti-poverty group War on Want attacked Bumi's ethical record ahead of today's emergency meeting, accusing the company of being of ‘virtually no benefit to the Indonesian economy'.
It blamed the company for ‘human rights violations, abuse of workers [and] environmental destruction'.
Campaigners are expected to launch a tirade against the company, further complicating a meeting likely to be characterised by the bitter three-way feud between Rothschild, the board and Indonesia's powerful Bakrie family.
London Mining Network campaigner Richard Solly said the fall in the price of thermal coal meant the company could not afford to improve ground operations at its Kalimantan site.
He added that Bumi (down 16.7p to 379.3p) could struggle to meet financial obligations to workers and displaced farmers, as well as rehabilitating ‘scarred and polluted' land.
Today's vote will determine whether Rothschild is able to oust the board, who he says are not independent of his co-founders turned bitter foes the Bakrie family.
Bumi plc meets today in London to sort out ownership feud
Down to Earth Press Release
21 February 2013
Whoever is in charge needs to be accountable for impacts on communities in Kalimantan, say CSOs.
London - An extraordinary general meeting (EGM) will today decide the fate of Bumi plc, the coal mining company which was listed on the London Stock Exchange in 2011 despite criticism about its operations in Indonesia.
The social, environmental, human rights and health impacts of massive-scale open-cast mining are blighting the lives of communities in Kalimantan as Indonesia's 'coal rush' continues.
Indonesia's coal mega-mine, Kaltim Prima, is controlled by PT Bumi Resources, the Indonesian company which in turn is 29% owned by London-listed Bumi plc. It produces over 40 million tonnes of coal per year, which is exported to mainly to markets in China and India. Meanwhile, villagers living near the mine have a long experience of forced evictions, livelihood loss, pollution, strikes and company collusion with State security forces.
Coal, the dirtiest of the fossil fuels, is also contributing to global climate change, bringing a further layer of disruption to the lives of poor communities in Kalimantan as well as the wider population.
Jointly operated by BP and Rio Tinto in the past, the mine renewed its UK links in 2010 when Nat Rothschild struck a deal with the Bakrie family to bring large-scale Indonesian coal mining to the London Stock Exchange, through a back-door deal avoiding the scrutiny of normal listing requirements for new companies.
The UK government has been widely criticised for allowing Bumi plc to list on the the London Stock Exchange, despite the involvement of the powerful Indonesian business family - the Bakries - in corruption, malpractice scandals and a long history of social and environmental impacts on local communities. These include a brutal attack against striking workers at the KPC mine in March this year and association with the Sidoarjo mudflow disaster, which killed 14 people and forced 30,000 people from their homes.
Now that the Bumi deal has gone sour, it appears that all sides in this internal conflict are looking to do anything it takes to win control of the company, from public relations dirty tricks and hidden shareholder alliances to recruiting new backers regardless of their ethical and business records.
Patrick Kane from War on Want, said: "Whatever the outcome of this pantomime in a London ballroom, the losers will be the Indonesian people who have reaped only negative consequences from Bumi's coal extraction: human rights violations, abuse of workers, environmental destruction.".
Richard Solly, Co-ordinator of London Mining Network, said: "Investors concerned about Bumi's share price, and the dodgy dealing, would do well to show similar interest in the way the company deals with human rights and environmental issues. It's not only investors who are suffering from the company's cavalier behaviour: it's workers, communities and ecosystems. But when London Mining Network and friends raised these issues at last year's AGM, we were accused of 'ranting'. Will investors start listening now?"
Andrew Hickman from Down to Earth, said: "Regardless of who wins Bumi's boardroom battle, one thing appears clear, the Bumi affair has revealed the bankrupcy of claims by large shareholders to be able to police their own activities. In 2012, the government rejected a proposed amendment to the Financial Services bill to strengthen regulation of mining companies listed on the London Stock Exchange. Surely, it is now time for the government to act? To do this, at very least, for the sake of people's lives and livelihoods in countries like Indonesia."
Protesters are planning to stage a demonstration outside the EGM today, while dissident shareholders from DTE, LMN are planning to ask pertinent questions about the company's impacts on the ground in Kalimantan inside the meeting.
For more information contact: Andrew Hickman, Down to Earth, 0750 473 8696.
For further background on Bumi see:
Drama at Bumi misses the point LMN, February 14th, 2013
In the shadow of the scandals surrounding Bumi plc, proposed ethics and human rights amendment to Financial Services Bill 'blocked' Press release by War on Want, London Mining Network and Down to Earth, October 16, 2012
Bumi's lesson: FSA light-tough approach does not work Press release: Down to Earth, London Mining Network and War on Want
2 October 2012.
Bumi falls at first hurdle DTE briefing, 14th June, 2012
Coal giant questioned over deaths, abuse, corruption at first AGM, Press Release by DTE, London Mining Network and War on Want. 14th June 2012.
An Indonesian company on the London Stock Exchange DTE 91-92, May 2012
For further background on KPC and coal-mining in Indonesia see:
Indonesia's coal: local impacts - global links DTE newsletter 85-86, August 2010