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UPDATE 2-Indonesia's Bakries propose end to London adventure

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(Releads with Bumi announcement)

By Janeman Latul and Clara Ferreira-Marques

SINGAPORE/LONDON, Oct 11 (Reuters) - Indonesia's powerfulBakrie family has proposed a parting of ways with London-listedcoal conglomerate Bumi Plc , the group they co-foundedwith financier Nat Rothschild, offering to take back theIndonesian assets they brought less than two years ago.

The proposal, made as directors gathered at a board meetingin Singapore on Thursday, comes after more than a year oftensions among Bumi shareholders and after tempers frayed againlast month, when the London group announced a probe intopotential wrongdoing at its Indonesian operations, including PTBumi Resources , the jewel in the Bakrie crown.

"For the Bakries, they will do anything to defend BumiResources," said a source close to the Indonesian family who wasaware of the proposal.

Details in a statement from Bumi Plc outline a separationthat would eventually leave the London firm, whose shares havetumbled since its re-listing last year, without operatingassets, and back at square one as an investment shell.

Bumi Plc said in a statement it was considering theproposal. There were no details on financing arrangements.

Bumi Plc shares were up 9 percent in volatile trade afterthe proposal, while, in Jakarta, shares in PT Bumi Resourceswere up about 6 percent.

Under the proposal, 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, out of astake of just over 29 percent currently held by the London firm.The Bakries would then buy the remaining 18.9 percent of sharesfor 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 Energywithin the next six months. Berau shares were up over 15 percentafter the news.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHICS: Bumi share price timeline Bumi shareholding structure ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> FRAYED TEMPERS

Bumi Plc's board was meeting for the first since the inquiryinto potential wrongdoing at the group's Indonesian operationswas announced last month. That, ostensibly, was top of theagenda for the scheduled meeting.

But the allegations of financial irregularities, against abackground of weak coal prices and tumbling shares, had strainedalready tense relations between major investors in the Londonventure and had fuelled speculation of a potential split betweenmajor shareholders.

The board includes Rothschild, Indra Bakrie, one of theBakrie brothers, and Samin Tan, an Indonesian billionaire whopulled the 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".

The letter was seen as a sign of his frustration with theBakrie family, whose patriarch Aburizal Bakrie is an Indonesianpresidential candidate.

Tan and the Bakries pushed out Rothschild as co-chairman inMarch and Tan became chairman.

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 -- the shares hebought are worth only one-ninth the level at which he came in.

Heightening tensions before the Singapore meeting, theBakries said on Wednesday that telephones and e-mail accountsbelonging to the family and its group of companies had beenhacked, pointing to unspecified "suspicions" over whom to blame.The incident has been reported to Indonesian police.

PROBE

Bumi Plc's statement on Thursday gave no update on the probeinto irregularities, being led by a London law firm and still inprogress. The investigation had revived worries over governanceat Bumi Plc and concerns over the woes of its debt-burdenedaffiliate, Bumi Resources.

Most of the allegations of financial irregularity, expectedto total more than $500 million, relate to Bumi Resources, theflagship Bakrie miner and Indonesia's largest coal producer. Twoof three investments at the centre of the probe, though, havealready been written down to zero by the London parent.

"While we are not able to quantify the amounts involved inthese irregularities, we believe this investigation mayreinforce the idea that the company needs to address its complexcorporate structure," analysts at JP Morgan, the bank thatfostered the creation of Bumi, said in a note last month.

Bumi was listed in London last year via a reverse takeoverengineered by Rothschild that aimed to create an internationalcoal-mining powerhouse with operations in Indonesian Borneo, andone of the biggest listed companies on the London exchange.

The deal highlighted the promise of Indonesia, SoutheastAsia's biggest economy, which boasts some of the world's largestdeposits of coal, gold, copper, tin and natural gas, spreadacross an archipelago of 17,000 islands.

But analysts have said banks and dealmakers looking forlong-term investments in Indonesia must tread carefully aroundthe powerful local conglomerate heads.

(Editing by Raju Gopalakrishnan)

((Raju.Gopalakrishnan@thomsonreuters.com))

Keywords: BUMI/