East-West alliance strains at the seams

An ambitious partnership between the House of Rothschild and Indonesia's Bakrie family in a mining operation is tested by a governance and finance dispute.

The Kaltim Prima coal mine in East Kalimantan, Indonesia, is one of the world's largest. Dimas Ardian / Bloomberg News

From financing war to being elevated to British and Austrian nobility, the history of the European House of Rothschild is packed with adventure and influence.

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Widely regarded in the 19th century as possessing the world's greatest private fortune, the dynasty has established powerful branches in different countries. Its scions are involved in disparate business activities, from high finance to a sizeable stake in Libération, a left-wing newspaper rooted in the Paris Spring of 1968.

One of the more intriguing Rothschild investments of recent times brings together the West and the East in a formidable union aimed at creating the world's biggest thermal coal mining company. But it appears the attempt to locate a rich seam of corporate success has run into some rocky obstacles.

The partnership seemed well placed to harness the vast resources of Indonesia, an archipelago of 17,500 islands with plentiful deposits of coal, natural gas, gold, copper and tin. One open-air mine alone, Kaltim Prima, in the Indonesian province of East Kalimantan, on the east of Borneo island, is described as the world's largest. The plan was to exploit heavy demand by coal-fired power stations in China, India and other emerging economies.

Yet for all the lofty ambitions with which the joint venture was launched, business observers have detected signs that the relationship may be proving too troublesome for comfort.

At the heart of the partnership is the strong, dynamic personality of Nathaniel "Nat" Rothschild, the 40-year-old son of the fourth Baron Rothschild, who is an investor based in Switzerland with a range of global interests.

In Indonesia, the public face of the Bakrie family business empire was for many years Aburizal Bakrie, the elder of the Bakrie brothers and the chairman of the conglomerate from 1999 to 2004.

The Bakries are among Indonesia's most prominent families - Aburizal is a potential presidential candidate in 2014 - but have also had to weather serious debt crises. Aburizal Bakrie also presided over the financial restructuring that saved the business after the Asian economic woes of 1998.

Mr Rothschild has spoken in upbeat terms about the future of the partnership, telling Reuters he had total confidence in the family. "In 10 years' time, I expect to still have the same type of strong and trusting relationship that I have with the Bakries today," he said.

A few weeks after making that comment, however, a leaked letter showed that the portrayal of harmonious collaboration was in some respects an illusion.

In the letter. Mr Rothschild demanded a "radical cleaning up" of the balance sheet and corporate culture at the Bakrie brothers' parent company, PT Bumi Resources, his partner in Bumi, a mining venture based in London.

It was sent to Ari Hudaya, the chief executive of both and PT Bumi Resources and Bumi, and its contents were revealed on the Financial Times website.

Mr Rothschild said the goal of listing on the FTSE 100 in London this year was still attainable but noted that shares had underperformed on the Jakarta market despite the wealth of coal assets. He expressed dissatisfaction in his dealings with his "over-leveraged" Indonesian fellow investors and called for "closer evaluation and scrutiny" of Mr Hudaya's dual role.

The suspicion of tension was hardly allayed in the response of Chris Fong, a spokesman for the Bakrie family, who said the Rothschild letter had taken them by surprise.

"Nat Rothschild hasn't addressed these issues with us," Mr Fong told Reuters. "If he wants to raise any issues, as a shareholder and board member, we would expect him to follow accepted corporate governance procedures and raise concerns at the board level and at the appropriate time."

Before the letter was sent, falls in Bumi's share prices had prompted international lenders to seek repayment on loans amounting to US$1.3 billion (Dh4.77bn).

Last month, TheJakarta Globe reported that a 23.8 per cent stake had been taken by the Indonesian coking coal company Borneo Lumbung Energi and Metal. This yielded $1bn, which is expected to go towards refinancing the Bakrie debt owed to a group of international lenders, notably Credit Suisse.

It is not clear whether subsequent changes at Bumi will meet Mr Rothschild's eagerness for a new approach or, in the longer term, affect his company's commitment to the mining operation to which he has declared such firm attachment.

Samin Tan, an investor brought in by the Bakries in October before Mr Rothschild called the company's corporate structure into question, was the chief executive of Borneo Lumbung but has stepped down and is hoping to join the Bumi board in place of Indra Bakrie, the son of Aburizal and Mr Rothschild's co-chairman, according to the Globe reports.

Mr Rothschild originally said he had no objection to the introduction in October of Mr Tan as a stakeholder, although he was reportedly unaware a deal was being struck until alerted by news reports. His view of the latest moves has yet to be made public.

How their relationship proceeds now that Mr Tan is more heavily involved may be a key factor in Bumi's future - and its declared objective of becoming the leading international coal company "serving growth markets across the globe with a particular focus on Asia".

As the sluggish return to normal business life after the Christmas and New Year break gathers pace, admirers of Mr Rothschild's business flair and the resilience of the Bakries will be awaiting with growing interest the next developments in this East-West corporate alliance.

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