RPT-UPDATE 4-Indonesia's Bakries propose end to London adventure


* Bakries propose $1.3 billion deal to buy back assets

* Propose unwinding of Bumi Plc

* Bumi shares soar over 40 pct after split proposed

* Rothschild sees "challenges" even after Bakrie exit

(Repeats to fix formatting in paragraph 15)

By Janeman Latul and Clara Ferreira-Marques

SINGAPORE/LONDON, Oct 11 (Reuters) - Indonesia's powerfulBakrie family has proposed splitting from financier NatRothschild and Bumi Plc, the London-listed miner they co-foundedtwo years ago, after news of an inquiry into possible wrongdoingstrained their already tense relations.

The dramatic plan put to board directors and key investorson Wednesday night would see the Bakries taking back theirIndonesian assets with deals worth an estimated $1.38 billion.

If their share swap and cash purchases proceed, they wouldexit Bumi Plc and dismantle the company they created withRothschild, drawing a line under the family's ill-fated Londonventure.

The potential unravelling of Bumi Plc , one of theworld's largest thermal coal exporters, is a bitter blow toRothschild, who staked his reputation on the investment and themodel behind it. It also marks the potential end of a miner thathas become emblematic of institutional investor concerns overgovernance at foreign resources firms listed in London.

"The Bakrie family agreed to create Bumi Plc as a way toexpand their interests, their reputation," one source familiarwith 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-listedminer that it was launching a probe into potential wrongdoing atits Indonesian coal mining operations, including PT BumiResources , the jewel in the Bakrie crown.

It is unclear whether the Bakrie proposal will allow theprobe, being led by London lawyers, to proceed. It had beenexpected to be completed within weeks.

"For the Bakries, they will do anything to defend BumiResources," said a Bakrie insider who was aware of the proposal.

Under the offer, the Bakrie family would cancel theirindirect 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 theLondon firm. The Bakries would then buy the remaining 18.9percent of shares for cash, before Christmas 2012.

The Bakries have also made a conditional proposal to buy outBumi Plc's 84.7 percent stake in PT Berau Coal Energy ,an associated Indonesian coal miner, within the next six months.

The news boosted Bumi's volatile shares, after months ofsteep losses driven by boardroom rows, Bakrie family debts andtumbling coal prices.

"Yes, it is an acknowledgement (of defeat)," said one sourceclose to the situation, who added it would be difficult for BumiPlc to work in Indonesia having split from the Bakries.

"No one would want to start from here, but given where weare, this is far from being the worst option."

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHICS: Bumi share price timeline Bumi shareholding structure ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> END OF THE AFFAIR

The Bakries - advised by Ian Hannam, the former JP Morganbanker who masterminded the creation of Bumi Plc two years ago -outlined a scheme that would leave the London firm withoutoperating assets and back at square one as an investment shell.

Bumi Plc's board is now considering the offer and willconsult with top investors.

"We are disappointed because there are some absolutelyfantastic assets in Indonesia," said one top-10 investor in BumiPlc, lamenting the loss of "beautifully located" assets, butpointing 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 gothrough with it, would lead to potential return of just under 5pounds a share according to our calculations," he said. "Fromout point of view, that is a disappointing outcome, but it isnot as catastrophic as it was."

Bumi Plc's volatile shares were up 41 at 262 pence inafternoon trade after the proposal, still far from peaks of over12 pounds hit in June last year. Jakarta-listed shares in PTBumi Resources ended up almost 6 percent.

London brokerage Numis said it might be time for theshareholders to cut their losses.

"Valuation aside, this looks like good news for Bumi Plc, inour view, as it could walk away with its reputation intact andsome cash in the bank," Numis analysts said.

"Losing its main assets would be a disappointment, but giventhe 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 notdisclosed, though a Bakrie spokesman said the London marketunderestimated the group's financial power, dismissingspeculation that the family would not be able to complete thedeal - leaving Bumi Plc with Berau, a smaller share in PT BumiResources and difficult working conditions in Indonesia.

People close to the deal said the Bakries were preparing toborrow up to half the amount required for the deal, possiblythrough financing arranged by Credit Suisse.

Dileep Srivastava, director and corporate secretary for PTBumi Resources, said the proposal could be a win for all sides.

"We are focused on operational excellence: to reach 100million tonnes production in 2014, deleverage and cut interestcharges... thereby (unlocking) our intrinsic value - withoutdistractions," he said.


The Bakrie proposal came just before Bumi's board met onThursday on the 8th floor of Singapore's Mandarin Orchard hotel.This included Rothschild, Indra Bakrie - one of the Bakriebrothers - and Samin Tan, an Indonesian billionaire who pulledthe Bakries back from default last year with a $1 billioninvestment, only to watch the value of his shares crumble.

The Bakries and Tan each hold half of a 47.6 percent stakein Bumi Plc, while Rothschild owns 12 percent.

The relationship between Rothschild and the Bakries, one ofIndonesia's most powerful and politically connected families,has soured since the London group's inception, particularlyafter a leaked letter from the financier last November thatcalled 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 afterwatching 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 hereceived as payment for the successful acquisition of the Bakrieassets, arguing Thursday's proposals reversed that deal.

Rothschild, for his part, said he expected the probe intoalleged wrongdoing to complete. He pointed to continuedchallenges for Bumi, including from shareholders still linked toBakries, after months of struggling to implement "appropriatestandards of corporate governance".

(Additional reporting by Saeed Azhar in SINGAPORE, FergusJensen in JAKARTA and Sinead Cruise in LONDON; Editing by RajuGopalakrishnan and Philippa Fletcher)


Keywords: BUMI/