SINGAPORE/LONDON Indonesia's powerful Bakrie family has proposed splitting from financier Nat Rothschild and Bumi Plc, the London-listed miner they co-founded two years ago, after news of an inquiry into possible wrongdoing strained their already tense relations.
The dramatic plan put to board directors and key investors on Wednesday night would see the Bakries taking back their Indonesian assets with deals worth an estimated $1.38 billion.
If their share swap and cash purchases proceed, they would exit Bumi Plc and dismantle the company they created with Rothschild, drawing a line under the family's ill-fated London venture.
The potential unraveling of Bumi Plc BUMIP.L, one of the world's largest thermal coal exporters, is a bitter blow to Rothschild, who staked his reputation on the investment and the model behind it. It also marks the potential end of a miner that has become emblematic of institutional investor concerns over governance at foreign resources firms listed in London.
"The Bakrie family agreed to create Bumi Plc as a way to expand their interests, their reputation," one source familiar with the situation said.
"In the end, it's been nothing but trouble."
Tensions have been rising between Bumi's shareholders, exacerbated last month by an announcement from the London-listed miner that it was launching a probe into potential wrongdoing at its Indonesian coal mining operations, including PT Bumi Resources (BUMI.JK), the jewel in the Bakrie crown.
It is unclear whether the Bakrie proposal will allow the probe, being led by London lawyers, to proceed. It had been expected to be completed within weeks.
"For the Bakries, they will do anything to defend Bumi Resources," said a Bakrie insider who was aware of the proposal.
Under the offer, the Bakrie family would cancel their indirect stake in the London-listed group, around 23.8 percent. In exchange, they would get 10.3 percent of PT Bumi Resources, out of a stake of just over 29 percent currently held by the London firm. The Bakries would then buy the remaining 18.9 percent of shares for cash, before Christmas 2012.
The Bakries have also made a conditional proposal to buy out Bumi Plc's 84.7 percent stake in PT Berau Coal Energy (BRAU.JK), an associated Indonesian coal miner, within the next six months.
The news boosted Bumi's volatile shares, after months of steep losses driven by boardroom rows, Bakrie family debts and tumbling coal prices.
"Yes, it is an acknowledgement (of defeat)," said one source close to the situation, who added it would be difficult for Bumi Plc to work in Indonesia having split from the Bakries.
"No one would want to start from here, but given where we are, this is far from being the worst option."
END OF THE AFFAIR
The Bakries - advised by Ian Hannam, the former JP Morgan banker who masterminded the creation of Bumi Plc two years ago -- outlined a scheme that would leave the London firm without operating assets and back at square one as an investment shell.
Bumi Plc's board is now considering the offer and will consult with top investors.
"We are disappointed because there are some absolutely fantastic assets in Indonesia," said one top-10 investor in Bumi Plc, lamenting the loss of "beautifully located" assets, but pointing to an outcome which could please bruised investors.
"This was a stock that was 150 pence before recent events - the current proposal, if the Bakries have the money to go through with it, would lead to potential return of just under 5 pounds a share according to our calculations," he said. "From out point of view, that is a disappointing outcome, but it is not as catastrophic as it was."
Bumi Plc's volatile shares were up 41 at 262 pence in afternoon trade after the proposal, still far from peaks of over 12 pounds hit in June last year. Jakarta-listed shares in PT Bumi Resources ended up almost 6 percent.
London brokerage Numis said it might be time for the shareholders to cut their losses.
"Valuation aside, this looks like good news for Bumi Plc, in our view, as it could walk away with its reputation intact and some cash in the bank," Numis analysts said.
"Losing its main assets would be a disappointment, but given the soggy coal markets and dark cloud surrounding the company, this might be a good way to move on."
Details on financing arrangements for the Bakries were not disclosed, though a Bakrie spokesman said the London market underestimated the group's financial power, dismissing speculation that the family would not be able to complete the deal - leaving Bumi Plc with Berau, a smaller share in PT Bumi Resources and difficult working conditions in Indonesia.
People close to the deal said the Bakries were preparing to borrow up to half the amount required for the deal, possibly through financing arranged by Credit Suisse.
Dileep Srivastava, director and corporate secretary for PT Bumi Resources, said the proposal could be a win for all sides.
"We are focused on operational excellence: to reach 100 million metric tonnes (110.23 tons) production in 2014, deleverage and cut interest charges... thereby (unlocking) our intrinsic value - without distractions," he said.
The Bakrie proposal came just before Bumi's board met on Thursday on the 8th floor of Singapore's Mandarin Orchard hotel. This included Rothschild, Indra Bakrie - one of the Bakrie brothers - and Samin Tan, an Indonesian billionaire who pulled the Bakries back from default last year with a $1 billion investment, only to watch the value of his shares crumble.
The Bakries and Tan each hold half of a 47.6 percent stake in Bumi Plc, while Rothschild owns 12 percent.
The relationship between Rothschild and the Bakries, one of Indonesia's most powerful and politically connected families, has soured since the London group's inception, particularly after a leaked letter from the financier last November that called for a "radical clean-up" in PT Bumi Resources.
But relations have also frayed between the Bakries and Tan. Sources have said Tan is "furious" with the Bakries after watching the value of his investment plunge.
There was no immediate word on the Bakrie proposal from Tan.
But a source close to the Bakrie family said the deal was a "clear message of separation with Tan".
The Bakries also urged Rothschild to return shares he received as payment for the successful acquisition of the Bakrie assets, arguing Thursday's proposals reversed that deal.
Rothschild, for his part, said he expected the probe into alleged wrongdoing to complete. He pointed to continued challenges for Bumi, including from shareholders still linked to Bakries, after months of struggling to implement "appropriate standards of corporate governance".
(Additional reporting by Saeed Azhar in SINGAPORE, Fergus Jensen in JAKARTA and Sinead Cruise in LONDON; Editing by Raju Gopalakrishnan and Philippa Fletcher)