Bumi Plc, the London-listed miner part-owned by Indonesia's influential Bakrie family, has launched an urgent investigation into potential financial irregularities at its subsidiaries, sending its shares down more than 30 per cent.
Bumi, co-founded by British-born financier Nat Rothschild, said on Monday it had commissioned an independent investigation after allegations concerning the use of company funds at its affiliates, including 29-per-cent-owned PT Bumi Resources, Asia's biggest exporter of thermal coal.
Bumi is one of several foreign-owned, London-listed miners that have raised corporate governance concerns among investors over the past year, triggering calls for tighter regulation.
The inquiry into what Bumi called "potential financial and other irregularities" will be led by an as-yet unnamed law firm. PT Bumi CEO Ari Hudaya stepped down from the board hours after the probe was announced.
The inquiry is expected to include a close look at some $300-million of funds earmarked for use by subsidiaries and affiliated companies to develop new projects, and also at certain loans extended by debt-burdened PT Bumi, long a concern for investors.
Bumi said that an area of focus would be the "extensive" development funds of PT Bumi, most of which were written down to zero at the end of last year, along with one potential mining project held by another subsidiary, PT Berau Coal Energy.
"We feel it does have the potential to bring to light some gross (and potentially criminal) mismanagement of funds which may turn off shareholders in the short-term," said Richard Knights at broker Liberum Capital.
PT Bumi Resources' auditor, Mazars/Tjiendradjaja & Handoko Tomo, could not be reached for comment.
Bumi, the most traded British mid-cap stock on Monday, closed down almost 25 per cent at 147.6 pence, off an earlier all-time low of 119.5 pence. PT Bumi shares in Jakarta slid by 19 per cent, while its bonds maturing in 2017 traded down nearly 20 basis points.
Bumi's stock has heavily underperformed the mining sector since its re-listing in June last year, weighed down by worries over its subsidiaries' debts amid weak thermal coal prices, battles between shareholders and a complex corporate structure.
The group's Indonesian partners tried to oust Mr. Rothschild from the board last year after he called – in a leaked letter to then-Bumi Plc and PT Bumi CEO Hudaya – for a "radical cleaning up" of governance at PT Bumi. The letter was seen as a sign of his frustration with the Bakrie family, whose patriarch Aburizal Bakrie is an Indonesian presidential candidate.
In a reshuffle at Bumi Plc that followed, Mr. Rothschild stepped down as co-chairman, and key investor and coal entrepreneur Samin Tan took the chairman's role.
Mr. Hudaya, a Bakrie veteran, became the first senior figure to quit since the probe was announced on Monday, stepping down from his non-executive role on Bumi Plc's board hours after the independent probe was announced.
Coal veteran Tan paid $1-billion through a high-interest loan for a 23.8-per-cent stake in Bumi Plc, helping to pull the Bakrie family back from the brink of default last year. A source familiar with the matter said he was not happy about the firm's financial problems and had decided to launch the investigation.
The Bakries do not fully agree with the inquiry, another source said. Mr. Rothschild, however, supports the probe, a spokesman for the financier said.
"It's a major development for Bumi Plc, which now has Samin Tan in control. People have been wondering whether these national coal assets have been mismanaged," said Jemmy Paul, an equity fund manager at Sucorinvest Asset Management in Jakarta, who manages more than $200-million.
"It will definitely hit all Bakrie-related stocks."
Shares in other firms in the Bakrie Group also fell on Monday on concerns over Bumi's problems. Property developer Bakrieland Development and energy firm Energi Mega Persada both slid 12 per cent, while plantation firm Bakrie Sumatera fell 9 per cent.
Stocks in Bakrie Group firms have been under pressure since PT Bumi, the group's flagship firm, posted an unexpected first-half loss because of derivative and foreign exchange losses. The performance also reflected weak thermal coal prices and high costs that are making life tough for the sector.
Operating costs for most of Indonesia's coal producers, the lowest in the world, have risen sharply this year at a time when the prices of coal used in power stations have been battered because of excess supply and weak demand from top consumer China.
"Clearly, given PT Bumi's high debt levels, the repatriation of funds and focus on core coal mining business is critical," said Liberum's Mr. nights.