Corporate Restructuring

Last-Minute Bumi Sale Threatens Rothschild Victory Hopes

Nathaniel Rothschild, founder of NR Investments and Samin Tan, chairman of Bumi PLC

A key Indonesian investor has sold his 10 percent holding in Bumi only days before a key vote on the miner's future, threatening Nat Rothschild's hopes of victory in the battle to win control of the company.

Bumi was intended to be a vehicle to bring lucrative coal assets to the London market. But the company, set up in 2010, has become a corporate quagmire, a cautionary tale for institutional investors and a battleground for its feuding co-founders - financier Rothschild and Indonesia's Bakrie family.

With Thursday's shareholder vote on Rothschild's plans for Bumi looming large, Rosan Roeslani's Recapital Group said it had sold its Bumi shares - worth a little more than 90 million pounds ($140 million) at Friday's close - to a company controlled by Indonesia's Tanoesoedibjo family and two funds.

(Read More: Nat Rothschild Hits Out at Bumi CEO and Board)

Monday's sale lifts voting restrictions on those shares, imposed late last year after British regulators ruled that Roeslani and the Bakrie family should have been considered to be acting together. The ruling capped the Indonesian investors' voting rights at less than 30 percent, though their economic interest was more than double that.

The Takeover Panel, according to Monday's statement, did not consider the new owners of Roeslani's shares to be acting together with the Bakrie family or the seller. The new owners are Flaming Luck Investments, controlled by the Tanoesoedibjo family, and hedge funds Avenue Asia Capital Management and Argyle Street Management.

However, several sources involved in the deal said that the sale could prove positive for the Bakries.

Media mogul Hary Tanoesoedibjo, one of Indonesia's richest men, owns Indonesia's biggest media company, MNC Group. Sources with knowledge of the plan said this month that MNC was a leading contender in the race for a majority interest in Bakrie media unit PT Visi Media Asia, a sale intended to fund the family's plan to buy back Bumi coal assets.

(Read More: Bumi Urges Rejection of Rothschild Call for New Board)

Tanoesoedibjo has bought 3 million shares - a little more than 1 percent - through Flaming Luck.

Vote Wide Open

"It's not a slam dunk. It appears to be all wide open again," said one source familiar with the Bumi power battle.

Hit by falling thermal coal prices, boardroom disputes and an independent investigation into potential wrongdoing at Bumi's Indonesian affiliates, the shares are trading at about a third of their June 2011 listing price, even after a recent recovery.

One fund manager on Monday compared Bumi's potential impact to that of the Guinness share-trading scam - a scandal that shook British business circles in the 1980s. While not accusing the miner of wrongdoing, the investor said that Bumi's travails could have a similar, transformational effect on regulation.

"This is a test case for London," a fund manager at one of Bumi's 10 largest institutional investors said.

"If being listed here is going to mean anything, the regulator has to step up to the plate and enforce the rules to make sure the accounts are trustworthy, the roles of directors are upheld and the rights of minority shareholders are better protected."

Shareholders will vote on Thursday on whether to back Rothschild's plan to oust 12 of 14 current directors, bring in a more operational focus and strike a better deal to oust the Bakries and focus on coal asset Berau.

The alternative is to back a rival plan to revive Bumi, led by the current board and involving an agreed split with the Bakries.

(Read More: Indonesia's Bakrie Family Agrees Terms of Bumi Split)

Rothschild, who has questioned the Bakries' ability to go through with the agreed split, had told a weekend newspaper that it was "almost arithmetically impossible for the other side to win", but Monday's sale makes that less clear.

Adding to Rothschild's worries on Monday, a commissioner at Indonesia's market regulator, OJK, said that a victory for the financier on Thursday would be considered a change of control at Bumi and would trigger a mandatory takeover of the shares it doesn't already own in subsidiary Bumi Resources.

That could cost more than $1.4 billion at Monday's share price, excluding debt. The Bakrie group, which puts the value of Bumi Resources at $4 billion, estimates that a change of control would also require a repayment of $4 billion in loans.

Rothschild's spokesman had no immediate comment.