Bumi’s issues are a further blow to IPOs

David Hellier
Follow David
WHEN Nat Rothschild set about raising finance in the City last year for a special purpose acquisition company named Vallares, he was met by investors with open arms.

Going to the market through advisers at Credit Suisse, JP Morgan and Evolution (now part of Investec), the heir to the Rothschild dynasty rose above the woes that had afflicted many new issues during the year to raise £1bn without a hint of trouble.

Partly investors believed in the business case; partly they were backing the business skills of former BP chief Tony Hayward as well as former Goldman Sachs executive Julian Metherell. But above all, the Nat Rothschild name was essentially seen as copper-plating the business plan. If he were to try the same thing now, Rothschild would almost certainly be told to beat a hasty retreat.

The problem for Rothschild is the performance of Bumi, the first of two special purpose vehicles he has been responsible for putting together. It is a thermal coal mining group he has part-owned since July 2010 with Indonesia’s Bakrie family. The relationship has been a troubled one to say the least, with Rothschild last year very publicly calling for a “radical cleaning up” of PT Bumi Resources, the Jakarta affiliate of Bumi and one of the world’s biggest coal miners.

Bumi is already suffering from a slump in the price of the coal as economic growth in China falters. But such a phenomenon might have been manageable had the company not suffered also from a slump in good business practice. Yesterday shares in the group fell around 25 per cent after two days of heavy falls as it revealed it had discovered irregularities in the accounts of PT Bumi Resources. Bumi’s share price is now at a fraction of the value at which shares were issued to investors in July 2010. They are worth around 150p now compared to 1,000p then, prompting some to describe the flotation as one of the worst IPOs of all time. Those that still support Rothschild on the Bumi board, like senior independent non-executive director Julian Horn-Smith, see the current situation as an opportunity to reassert good corporate practice at the group.

For London, Bumi’s problems could not have come at a worse time. There have been few new issues since Glencore last year, with investors sitting on the sidelines after being burned by a series of poor performing flotations and only really coming out to play in big numbers to support a name like Rothschild. Yesterday there was exasperation and dismay at the dawning that even these type of flotations, which depend on a long-established names raising funds for an acquisition, might now be out of bounds. david.hellier@cityam.com