Unhelpful incentives

28 September 2012 By Kevin Allison, Chris Hughes

Whatever the truth behind alleged financial irregularities at the Indonesian coal miner, Bumi’s woes raise questions about the incentives that drove Nat Rothschild and other big names in finance to migrate the emerging-market miner to London. Merge in haste, repent at leisure.

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Bumi Resources, an Indonesian affiliate of Bumi Plc, the London-listed acquisition vehicle, said it would act quickly to resolve allegations of financial irregularities as its credit rating was cut on Sept. 26.
The assurance came two days after Bumi Plc announced an independent probe into potential irregularities related to more than $500 million of funds at Bumi Resources and another Indonesian subsidiary. Standard & Poor’s Ratings Services said the investigation would weaken Bumi Resources’ capital markets position and cut its investment rating one notch to BB-.
Bumi Plc’s shares have fallen 85 percent since the company re-listed on the London Stock Exchange in 2011 following a reverse merger with coal companies controlled by Indonesia’s Bakrie family.
Credit Suisse floated Vallar, the cash shell that eventually became Bumi, on the London market in 2010. Mining supremo Ian Hannam, who was working with JP Morgan, brokered the London-Jakarta deal.
In Indonesia, Credit Suisse was joint bookrunner on a public bond launched by Bumi Resources, Bumi Plc’s main asset. It also led the flotation of Berau Coal Energy, a smaller coal producer that was folded into the London group.

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