Shares in Bumi, the mining investor founded by Nat Rothschild, scion of the financial dynasty, crashed by a quarter on Monday as the firm launched an investigation into allegations of financial dishonesty at its main affiliate, one of Indonesia's largest coal producers.
The board of London-listed Bumi was sent documents from a whistleblower in Jakarta last week relating, in part, to a $322m (£198m) writedown the company made last year. The company refused to go into details about the allegations of "potential financial and other irregularities in the company's Indonesian operations." But they relate to investments of $800m (£494m) made by PT Bumi Resources, the Indonesian group in which Bumi has a 29% stake, that are judged to be almost worthless.
It is understood Bumi's lawyers recommended an independent investigation. The company told shareholders it "intends to contact relevant authorities in the UK and Indonesia, as appropriate, in respect of some of the allegations". It is understood the Financial Services Authority and Serious Fraud Office were informed on Friday.
An investigation by the FSA is also likely to start into heavy share trading on Friday afternoon, which sent the shares down more than 20% even though the allegations were made public only on Monday.
Bumi's shares hit an all-time low of 148p. The company has lost 85% of its value since it listed as a cash shell two years ago after Rothschild led a £700m fund-raising.
Rothschild, whose Indonesian partners are the Bakrie family, is said to be fuming over an apparent lack of due diligence undertaken by investment bank JP Morgan when Bumi was pursuing its Indonesian deal in 2010.
He has seen his 12% shareholding lose around £32m in value in the past week.
The original plan had been to raise governance standards at PT Bumi Resources but the Indonesian operation has run into diffculties in the last year, partly because of heavy debts and partly because of a fall in the price of coal. The family patriarch, Aburizal Bakrie, is an Indonesian presidential candidate.
Rothschild wrote to the chief executive of PT Bumi Resources last year calling for debts to be paid down. His intervention prompted a bitter war of words and threats to oust Rothschild as co-chairman of Bumi.. In the end, the financier stepped down from that position, but he maintains a position on the board. A key investor and coal entrepreneur Samin Tan stepped in as chairman after buying half the Bakrie family's stake in the London-listed company for $1bn.
In a statement on Monday the company said some of the allegations related to a writedown of "development funds" in the two Indonesian companies it holds a stake in, PT Bumi Resources, Asia's biggest exporter of thermal coal, and PT Berau. The affair will be an embarrassment for some of the non-executive directors recruited by Rothschild, including Lord Renwich, Sir Julian Horn-Smith and Sir Graham Hearne. But it is understood they are still committed to the company.
A non-executive director, Ari Hudaya, stepped down from the Bumi board hours after the investigation was announced. Hudaya has been president director of PT Bumi Resources since 2001.
In Indonesia there are concerns that PT Bumi Resources, which is laden with debts of $4bn, could be forced to hold a rights issue if the cost of thermal coal fails to rise in the next six months.
It currently pays interest rates of 19% on a $1.3bn loan it owes to the China Investment Corporation. It is also struggling to call in money it is owed, in particular $482m from an investment fund, Recapital, run by Rosan Roeslani, who also sits as a non-executive on Bumi's board.
Richard Knights, analyst at Liberum Capital, said: "Bumi won't make any money in 2013 if spot thermal coal prices prevail. In our view either thermal coal prices rise or non-core assets need to be sold in order for Bumi to avoid a capital raise in 2013."
The company was accused of human rights abuses over alleged coal dumping, releasing chemicals into coral reefs, and mistreatment of workers at its last AGM.
Andrew Hickman, from the London Mining Network, said: "We continue to question the legitimacy of Bumi plc's listing on the London Stock Exchange. Through light-touch regulation, companies with shocking financial, social and environmental records associated with Bakrie familiy interests have gained access to the London financial markets, under the umbrella of Bumi plc.
"Today's news of a company investigation into malpractice appears to be window-dressing for a situation that is well known to Indonesian observers of the mining sector."
http://www.guardian.co.uk/business/2012/sep/24/rothschild-mining-bumi-investigation-indonesia/print