Bumi Plc - a Clash of Dynasties

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Table 1: Bumi Shareholding Structure at 30 September 2011

Notably, the Bakries now held 47.6% of the share capital of the company through their companies PT Bakrie & Brothers Tbk. and Long Haul Holdings. Under the UK Takeover Code, the acquisition of 30% or more of the voting rights of a company required a mandatory cash offer for all the company shares. To obtain a waiver, the

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Bumi PLC: A Clash of Dynasties

Bakries agreed to limit their voting power to 29.9%24. Roeslani received 10% of the share capital, which in light of the Bakrie waiver was worth 13.3% of the voting rights in the company. In total, 43.3% of Bumi’s voting rights were controlled by Indonesian businessmen.

As for Rothschild, the reverse takeover left him with a 2.4% stake with 3.66% of voting rights. However, on 30 September, he exchanged the nearly 16.1 million bonus shares that he had received upon completion of the acquisition for 16,064,608 new Bumi Voting ordinary shares. This boosted his voting power to 11.7%.

The shift in power inevitably cast the spotlight on these new key players. The Bakries were a business dynasty steeped in political influence. They were risk-takers25 who had built their sprawling empire on debt and leverage. The family business was controlled by three brothers and the eldest, Aburizal Bakrie, was a front-runner for the 2014 Indonesian Presidential Election26. Roeslani controlled a diverse portfolio of businesses under the umbrella of Recapital Group. Though their relationship was unclear, Roeslani and the Bakries had had significant business dealings with each other. At the time of the reverse takeover, Roeslani controlled PT Recapital Asset Management and PT Bukit Mutiara owed PT Bumi US$231m and US$251m in outstanding loans27.

Board Games

The reverse takeover also significantly changed Bumi’s board composition. Indra Bakrie and Rothschild took over as Co-Chairmen of the board. New executive directors were also appointed. PT Bumi President Director Ari Hudaya became Chief Executive Officer (CEO) while PT Bumi Chief Financial Officer (CFO) Andrew Beckham assumed the CFO role. Meanwhile, Roeslani became a non-independent28, non-executive director.

The make-up of the board was heavily influenced by the Bakries. On 16 June 2011, the Bakrie Group signed a relationship agreement with Bumi. As long as they controlled 15% of voting rights, they would be entitled to nominate the Chairman, CEO and the CFO of the Bumi board29. Roeslani’s PT Bukit Mutiara had an identical agreement, except it could only appoint one non-executive director. These relationship agreements would become a bone of contention in the ensuing debacle.

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Samin Tan: The Bakries’ White Knight

It was public knowledge that the heavily leveraged Bakries had pledged all their Bumi shares for a US$1.345 billion credit facility from Credit Suisse AG. In October 2011, Bumi warned that the repayment deadline was nearing but the Bakries still did not have a solution30.

Mining tycoon Samin Tan then entered the fray31. On 1 November 2011, he agreed to purchase half of the Bakries’ 47.6% Bumi stake for US$1 billion through his company PT Borneo Lumbung Energi and Metal (‘PT Borneo’)32. He paid an average of £10.91 per share - a stunning 47% premium to Bumi’s previous day close. The stake would not be divided, but rather jointly held within Special Purpose Vehicles (SPVs)33. Investors welcomed the news and Bumi’s stock spiked 27% over the next two weeks. Yet, Tan’s introduction would have far-reaching implications for the company’s future beyond anyone’s expectations.

Rothschild Declares War

“Nat is a very good friend of mine, but he does tend to go straight into the wall head down hoping the wall will break … You particularly don’t do what he did to a bunch of Asian toughies.”

– Simon Murray, Chairman of Glencore International

A mere nine days after Samin Tan’s introduction, Rothschild unexpectedly took his grievances public. He leaked a scathing letter addressed to Bumi CEO Ari Hudaya to the Financial Times34. The letter called for a clean-up of the corporate governance and balance sheet at PT Bumi, suggesting that the company was over-leveraged because it had extended too many loans out to connected parties. He questioned Hudaya’s dual role as CEO of Bumi and PT Bumi, and also accused him of not responding to board queries35.

Rothschild’s dissatisfaction had probably been brewing for some time. First, PT Bumi had had more than US$550 million in loan receivables that seemed unrelated to its coal business, raising questions about the transactions and connected parties36. Second, PT Bumi had US$394 million in unspecified business development assets on its books. Third, prior to refinancing, PT Bumi had maintained all these monetisable assets37 while paying an exorbitant 19% annual interest rate on US$600

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Bumi PLC: A Clash of Dynasties

million in debt to the China Investment Corporation (CIC). Rothschild believed this imprudence was corporate governance-related.

Bumi’s poor share price performance probably compounded Rothschild’s unhappiness. Even after Samin Tan’s welcomed intervention, Bumi was still trading at 15.4% below IPO price on the date of Rothschild’s letter38. Despite a good operating performance in the first half of the fiscal year, the share price was overwhelmed by a maelstrom of worrying macroeconomic factors. These included the Eurozone sovereign debt crisis, as well as the peaking and subsequent decline of Indonesian coal prices39.

Rothschild’s letter caused irreparable damage to his relationship with the Bakries. Though a new debt collection schedule was agreed, the Bakries and Tan actively sought to remove Rothschild from the board. After they threatened to call an EGM, Rothschild eventually