Insight: Borneo mines lure Rothschild into the wild

Sat Nov 12, 2011 7:15pm EST
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By Janeman Latul, Saeed Azhar and Clara Ferreira Marques

JAKARTA/LONDON (Reuters)- It was supposed to be a union of two legendary business dynasties, one West, one East. Nathaniel Philip Rothshild, the 40-year-old scion of the storied European banking family, forged a deal a year ago with the Bakrie brothers, one of Indonesia's mightiest business families, to create an international coal-mining titan.

That deal last November seemed incredible from the start; the dream of creating the world's biggest thermal coal company, with mines in Indonesian Borneo, and aiming to be one of the biggest listed companies on the London exchange. Now a year later the partnership could be on the brink of collapse.

This week Rothschild called for a "radical cleaning up" of the balance sheet and corporate culture at the Bakrie brothers chronically indebted flagship, PT Bumi Resources, his partner in the London-listed coal venture, Bumi Plc.

In a letter written to Ari Hudaya, Chief Executive of both Bumi Plc and Jakarta-listed PT Bumi Resources, Rothschild said the partnership's goal of entering the FTSE-100 in 2012 was still attainable. But he was not satisfied with progress so far with his Indonesian partners, who remain "over-leveraged," which was a major factor in the "corporate governance discount" on the Jakarta's firm's stock price.

The leaked letter was a stunning rebuke to top Bakrie lieutenant Ari Hudaya. Hudaya's dual role as CEO of both the Bakries' PT Bumi Resources and the Bumi Plc joint venture required "closer evaluation and scrutiny," Rothschild wrote in the letter, published on the Financial Times website.

Rothschild knew he was dealing with one of Southeast Asia's most powerful and controversial families, and one with chronic debt issues. Over the past two decades, he has flirted with risk and emerging market powerbrokers, ranging from an oil venture in Iraqi Kurdistan to a friendship with Muammar Gaddafi's son Saif al-Islam, who has been trying to flee Libya after the death of his father.

In the process, Rothschild has shed the party-hard reputation of his university years -- the Sunday Times Rich List anointed him Britain's richest hedge fund manager and he is estimated to be worth around a billion pounds. He has emerged as a serious dealmaker with a contacts book to rival that of his father, Baron Rothschild, and spends the equivalent of around a month each year in his private jet "N4T."

On the Indonesian side, Aburizal Bakrie, the oldest of the brothers, headed the group until 2004, when he joined President Susilo Bambang Yudhoyono's administration. He left after repeatedly clashing with reformers in Yudhoyono's government and now heads Indonesia's biggest political party, Golkar. He is a likely presidential candidate in the 2014 Indonesian elections.   Continued...

<p>Financier and co-chairman of Bumi Plc Nathaniel Rothschild (L) sits with Bakrie &amp; Brothers Chief Executive Officer Bobby Gafur Umar following an agreement between Bumi Resources and Vallar Plc in Singapore, in this handout photo dated November 15, 2010. REUTERS/Bakrie &amp; Brothers/Handout</p>