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

(Releads with Bumi announcement)

By Janeman Latul and Clara Ferreira-Marques

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

The proposal, made as directors gathered at a board meeting in Singapore on Thursday, comes after more than a year of tensions among Bumi shareholders and after tempers frayed again last month, when the London group announced a probe into potential wrongdoing at its Indonesian operations, including PT Bumi Resources , the jewel in the Bakrie crown.

"For the Bakries, they will do anything to defend Bumi Resources," said a source close to the Indonesian family who was aware of the proposal.

Details in a statement from Bumi Plc outline a separation that would eventually leave the London firm, whose shares have tumbled since its re-listing last year, without operating assets, and back at square one as an investment shell.

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

Bumi Plc shares were up 9 percent in volatile trade after the proposal, while, in Jakarta, shares in PT Bumi Resources were up about 6 percent.

Under the proposal, the Bakrie family would cancel their indirect stake in the London-listed group, around 23.8 percent. In exchange, they would get 10.3 percent of PT Bumi, out of a stake of just over 29 percent currently held by the London firm. The Bakries would then buy the remaining 18.9 percent of shares for cash, before Christmas 2012.

The Bakries have also made a conditional proposal to buy out Bumi Plc's 84.7 percent stake in PT Berau Coal Energy within the next six months. Berau shares were up over 15 percent after the news.

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

Bumi Plc's board was meeting for the first since the inquiry into potential wrongdoing at the group's Indonesian operations was announced last month. That, ostensibly, was top of the agenda for the scheduled meeting.

But the allegations of financial irregularities, against a background of weak coal prices and tumbling shares, had strained already tense relations between major investors in the London venture and had fuelled speculation of a potential split between major shareholders.

The board includes Rothschild, Indra Bakrie, one of the Bakrie brothers, and Samin Tan, an Indonesian billionaire who pulled the Bakries back from default last year with a $1 billion investment, only to watch the value of his shares crumble.

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

The relationship between Rothschild and the Bakries, one of Indonesia's most powerful and politically connected families, has soured since the London group's inception, particularly after a leaked letter from the financier last November that called for a "radical clean-up".

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

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

But relations have also frayed between the Bakries and Tan.

Sources have said Tan is "furious" with the Bakries after watching the value of his investment plunge -- the shares he bought are worth only one-ninth the level at which he came in.

Heightening tensions before the Singapore meeting, the Bakries said on Wednesday that telephones and e-mail accounts belonging to the family and its group of companies had been hacked, 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 probe into irregularities, being led by a London law firm and still in progress. The investigation had revived worries over governance at Bumi Plc and concerns over the woes of its debt-burdened affiliate, Bumi Resources.

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

"While we are not able to quantify the amounts involved in these irregularities, we believe this investigation may reinforce the idea that the company needs to address its complex corporate structure," analysts at JP Morgan, the bank that fostered the creation of Bumi, said in a note last month.

Bumi was listed in London last year via a reverse takeover engineered by Rothschild that aimed to create an international coal-mining powerhouse with operations in Indonesian Borneo, and one of the biggest listed companies on the London exchange.

The deal highlighted the promise of Indonesia, Southeast Asia's biggest economy, which boasts some of the world's largest deposits of coal, gold, copper, tin and natural gas, spread across an archipelago of 17,000 islands.

But analysts have said banks and dealmakers looking for long-term investments in Indonesia must tread carefully around the powerful local conglomerate heads.

(Editing by Raju Gopalakrishnan)

((Raju.Gopalakrishnan@thomsonreuters.com))

Keywords: BUMI/