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UPDATE 5-Indonesia's Bakries propose end to London adventure

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* 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

(Updates with Borneo statement, loan detail)

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.

Under a plan put to board directors and top investors onWednesday night, the Bakries would take back their Indonesianassets with deals worth an estimated $1.38 billion.

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

The possible unravelling of Bumi Plc , one of theworld's largest thermal coal exporters, is a blow to Rothschild.

It also marks the potential end of a miner that has becomeemblematic of institutional investors' worries about governanceof 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 buttrouble."

Tensions have been rising between Bumi's shareholders,exacerbated last month by the company's announcement that itwould start an investigation into possible wrongdoing at itsIndonesian coal mining operations, including PT Bumi Resources, the jewel in the Bakrie crown.

It is unclear whether the Bakrie proposal will allow theinquiry, 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 caused 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 onewould want to start from here, but given where we are, this isfar 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 - outlined ascheme that would leave the London firm without operating assetsand 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. "Fromour point of view, that is a disappointing outcome, but it isnot as catastrophic as it was."

Bumi Plc shares closed at 259 pence after the proposal, upalmost 40 percent but still far from peaks of over 12 pounds hitin June last year. Jakarta-listed shares in PT Bumi Resourcesended 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 mainassets would be a disappointment, but given the soggy coalmarkets and dark cloud surrounding the company, this might be agood way to move on."

Dileep Srivastava, director and corporate secretary for BumiResources, said the offer could be a win for all sides, leavingthe Bakries to focus on operations "without distractions".

It was unclear, however, how the indebted Bakries would payfor the cash portion of deal - particularly the stake in Berau,estimated at almost $950 million in the proposal - promptingspeculation about whether the deal would be completed.

Sources familiar with Bakrie finances said the proposalwould, for example, need approval from lenders involved in a$437 million loan backed by the family's shares in Bumi Plc.

A Bakrie spokesman, however, said the London marketunderestimated the group's financial clout, dismissing concernsthat Bumi Plc could end up left with Berau, a smaller share inPT Bumi Resources 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 long-time bankers Credit Suisse.

SINGAPORE MEETING

The Bakrie proposal waqs made just before Bumi's board meton Thursday in Singapore. The gathering included Rothschild,Indra Bakrie - one of the Bakrie brothers - and Samin Tan, anIndonesian billionaire who pulled the Bakries back from defaultlast year with a $1 billion investment, only to watch the valueof 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 families, has soured since the Londongroup's inception, particularly after a leaked letter from thefinancier last November that called for a "radical clean-up" inPT Bumi Resources.

But relations have also frayed between the Bakries and Tan.

Tan said in a statement on Thursday that he expected tocontinue holding shares in Bumi Plc, and to stay on as chairman.He is discussing with the Bakries how to dissolve their tiedshareholding in Bumi Plc, and expects to recover his original,debt-funded investment, he said, giving no details.

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 inquiry intoalleged wrongdoing to be completed. 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, PrakashChakravarti in HONG KONG, Fergus Jensen in JAKARTA and SineadCruise in LONDON; Editing by Raju Gopalakrishnan, PhilippaFletcher and David Stamp)

((Raju.Gopalakrishnan@thomsonreuters.com))

Keywords: BUMI/