September 27, 2012 / 1:44 PM / 7 years ago

Exclusive - Indonesia's Bakries could split from tycoon Tan over Bumi dispute

JAKARTA/LONDON (Reuters) - Indonesia’s Bakrie family is facing a potential split with business tycoon Samin Tan, who pulled the Bakrie Group from the brink of default when he invested $1 billion (616 million pounds) in London-listed miner Bumi Plc - an investment now worth $140 million.

Samin Tan, an Indonesian major shareholder of Bumi Plc and Borneo Lumbung Energy and Metal speaks during an interview in Jakarta February 7, 2012. REUTERS/Enny Nuraheni

Tensions between the Bakries and Tan have come to the fore since Bumi Plc launched a probe over financial irregularities into Indonesian coal producer PT Bumi Resources Tbk, in which it has a 29-percent stake, half a dozen sources in London and Jakarta with knowledge of the matter said.

The rift is the latest to rattle the board of Bumi Plc. Co-founder Nathaniel Rothschild clashed with the Bakrie family, one of the richest and most politically connected in Indonesia, in the past year.

The probe this week added to investor concerns about the company, which has hit the share price. Nine months after Tan bought a 23.8 percent stake in Bumi Plc from the Bakries, the company’s share price has plunged 80 percent.

“He was furious with the Bakries, as you would be if you had borrowed $1 billion to invest in their company and found yourself in this mess,” said one source.

The deepening rift between the top shareholders could unravel the $3 billion deal signed in 2010 to create Bumi Plc as one of the world’s biggest coal exporters.

A separate source, based in Jakarta, said an attempt to foster reconciliation between Tan and the Bakries began late on Wednesday, but it was unclear if it would succeed.

Reuters contacted both the Bakrie family and Tan for comment but received no response. The sources in London and Jakarta declined to be identified because of the sensitivity of the matter or because they weren’t authorised to speak to the media.

It’s not immediately clear how the Bakries and Tan might resolve their dispute. It’s more likely to be dealt with in negotiation than through the legal system, several sources in Jakarta said.

Ultimately though, if efforts to restore the relationship fail, the two may decide to go their separate ways by breaking up their shareholding partnership in Bumi Plc that is held through two joint-venture holding companies, two sources close to the companies involved said. The Bakries and Tan each hold half of a 47.6 percent stake in Bumi Plc.

“There will be a bitter battle to the end,” said one of these sources.

The source said the Bakries are also worried Tan might form an alliance with Rothschild, a hedge fund veteran and scion of the Rothschild banking dynasty, who holds a 12 percent stake in Bumi Plc.

“This is Rothschild striking back,” said the second source close to the companies involved. However, sources in London denied any involvement by Rothschild.

Tan and the Bakries pushed out Rothschild as co-chairman in March in a board shake-up after a letter from the financier demanding a “radical cleanup” was leaked. Tan became chairman.

COAL MINING POWERHOUSE

Bumi Plc’s shares took a tumble earlier this week after it asked a London law firm to conduct an independent investigation into Bumi Resources — the Bakrie’s flagship company and Indonesia’s largest coal producer — citing potential financial irregularities of more than $500 million.

That could swell to $1.1 billion if the investigation includes loans to related parties, said a source familiar with the investigation on Tuesday.

“The present situation is unfortunate and is an internal issue between a few shareholders who have chosen to go external managing media through innuendo,” said Dileep Srivastava, the investor relations spokesman for Bumi Resources, which is also Asia’s biggest thermal coal exporter.

Standard & Poor’s downgraded Bumi Resources on Wednesday by a notch to B-plus and cut its outlook to credit-watch negative, indicating possible further downgrades of the Jakarta-listed miner on fears it will struggle to refinance maturing debt in coming months.

The shareholder clashes add to a string of problems at Bumi, listed in London last year via a reverse takeover engineered by Rothschild that aimed to create an international coal-mining powerhouse with operations in Indonesian Borneo, and one of the biggest listed companies on the London exchange.

The deal highlighted the promise of Indonesia, Southeast Asia’s biggest economy, which boasts some of the world’s largest deposits of coal, gold, copper, tin and natural gas, spread across an archipelago of 17,000 islands.

The Borneo coal mines at the heart of the deal once belonged to global energy companies Rio Tinto, BP and BHP Billiton, who sold them to the Bakries in 2001 and 2003, after facing pressure from nationalists to divest their assets to local interests.

The sources said any friction was unlikely to prompt the London company to seek to sever ties with Bumi Resources, which controls two of Indonesia’s biggest prime coal assets in PT Kaltim Prima Coal and PT Arutmin Indonesia.

“A spin off is not currently being considered,” a source close to Bumi Plc said.

The entity owns 85 percent of Indonesia’s fifth-largest coal miner, PT Berau Coal Energy, in addition to the stake in Bumi Resources.

Based on current market values, Bumi Plc’s stake in Bumi Resources is worth about $422 million, while its stake in Berau is worth around $530 million.

A more than 20 percent slide in coal prices, based on benchmark values in Asia, has also weighed on Bumi Plc’s share price, as China’s economic growth has slowed down this year.

“LACK OF TRANSPARENCY”

Bumi Resources said on Wednesday it would act swiftly to resolve the independent probe, which could shed light on the financial dealings of the Bakries at a delicate time.

Tycoon Aburizal Bakrie, former chairman of the Bakrie Group, is running for president in 2014 as the candidate for the Golkar Party, the second-biggest in parliament and part of the ruling coalition.

“If Aburizal Bakrie wants to be Indonesia’s No. 1, either as a president or kingmaker, he desperately needs to restore the group image,” said Jemmy Paul, a fund manager who oversees $200 million at Sucorinvest Asset Management in Jakarta.

Xavier Jean, a Standard & Poor’s credit analyst, noted Bumi Resources’ “substantial debts” of $3.95 billion, of which $400 million falls due in 2013.

“It’s sensitive because of the entire shareholding structure and the political connections associated with one of the owners,” he told Reuters. “There’s the general lack of transparency surrounding this company, which doesn’t really help assuage concerns the market may have.”

Hard numbers lie at the root of the present differences, according to people connected to the situation.

Tan’s coking coal miner Borneo Lumbung Energi had no debt before its $1 billion loan from Standard Chartered to acquire the Bumi Plc stake.

Tan now faces high interest on the acquisition and is trying to sell 20 percent of his own Borneo Lumbung Energi coking coal mine to raise cash.

At the same time, news of the probe will cut access for the Bakrie Group to capital markets and force it to sell assets to cut down debt levels, said a banker familiar with the situation.

James Kallman, managing partner at Mazars Indonesia, auditors for Bumi Resources, said he believed the company had made proper disclosures and had full confidence in his client.

“There is no doubt there were some risk assets,” he said. “We have to disclose whatever needs to be disclosed ... We believe that has been done.”

Janeman Latul reported from Jakarta and Clara Ferreira Marques from Moscow. Additional reporting by Neil Chatterjee, Fergus Jensen, and Matthew Bigg in Jakarta, Saeed Azhar in Singapore; Writing by Jason Szep; Editing by Neil Fullick and Dean Yates

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