Not King Coal
The Rothschild-Bakrie marriage hits the rocks
IN AN early episode of Sergeant Bilko, a 1950s TV comedy, the eponymous hero rents an empty store.
His fellow soldiers, convinced that the army's smartest operator sees a business opportunity, beg to be made partners.
Not all do well out of the deal.
Nat Rothschild also has a name that inspires confidence among investors. The scion of a European banking dynasty,
Mr Rothschild raised ￡707m to create his own empty store, a London-listed cash shell named Vallar.
He then used the cash to buy stakes in two coal-mining ventures in Indonesia associated with the Bakrie group, a family-owned conglomerate.
Bumi PLC, the British-based company that emerged with Mr Rothschild as co-chairman, appealed to cautious punters who might otherwise have shied away from risky commodity bets in faraway places.
But the marriage of British finance and Indonesian business is on the rocks, and investors are sore.
On February 3rd the Bakrie family and Samin Tan, an Indonesian businessman, called on Bumi's shareholders to unseat Mr Rothschild from the board.
The move came after months of boardroom strife, which began when the Bakries sold half of their stake to Mr Tan, to pay off debts.
It worsened last November when Mr Rothschild called for a radical ‘cleaning up' of the balance-sheet and corporate culture of Bumi's Indonesian affiliate.
Bumi's share price is down by two-fifths from a year ago.
Few in Indonesia were surprised by the clash.
The Bakries have commercial and political clout, and are used to getting their own way.
In Britain the spat has added to investors' concerns that a premium London listing is too easily awarded to companies that have controlling shareholders,
as well as risky operations, in unstable places.
Mining and oil companies account for some 30% of the value of London's stockmarket, about twice the global weighting.
Some of them are established firms, such as BHP Billiton, BP and Shell, but they also include a newer breed of mining stocks,
such as ENRC and Bumi, which are ostensibly British companies but the balance of power among shareholders lies elsewhere.
The clashes between Mr Rothschild and his Indonesian partners show that his model of bolting British governance standards onto a foreign firm is defective, says a fund manager in London.
Fund managers who don't like the way a company is managed can in principle steer clear of it.
But a company that qualifies for a London listing is also a candidate for inclusion in stockmarket indices,
such as the FTSE 100, an industry benchmark.
Low-cost funds that track such indices are obliged to buy these stocks whatever their merits.
And active fund managers can ill afford to steer clear of too many mining stocks or their portfolios might trail the overall market.
Set-ups like Bumi's seem designed to tap into this captive pool of capital.
Ernest Bilko would admire the ingenuity. But investors deserve better.
The most extreme failure of governance is violent conflict.
Romulus was the eponymous founder of Rome.
The servant enjoyed his master's confidence.
All our hopes rested upon this venture.
She is cautious of telling secrets.