Ben Chu: It is Nat Rothschild's investors in Bumi who are the truly unlucky ones

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The Independent Online

Outlook Poor Nat Rothschild. The financier with the storied surname laments in an interview with Bloomberg that he was "unlucky" ever to have got involved with the Indonesian coal-miner Bumi and its owners, the Bakrie family.

Those who swallowed Rothschild's sales pitch back in 2010 and invested in his stock market vehicle that brought Bumi's assets to London doubtless feel pretty hard done by too. The Bumi share price is down by around 75 per cent. Trading in the FTSE 250 company's shares are suspended while it investigates some "questionable expenditures" it made somewhere in South-east Asia.

Such has been the mind-numbing complexity of the accusations and counter-accusations exchanged between Mr Rothschild and the Bakries over the past six months that it is impossible for the ordinary investor to work out who is at fault for this disaster. But one thing, at least, should be clear: Bumi was a terrible investment.

The affair has inflicted grave damage on the reputation of the UK's equity markets. This is a business that should never have been allowed to float in London. The same goes for some other large emerging mining and energy companies listed in the capital.

The current investigation into allegations about the Kazakh miner Eurasian Natural Resources Corp (ENRC) by the Serious Fraud Office suggests that Bumi was not an unfortunate one-off. Deutsche Bank and Morgan Stanley have resigned as brokers to the firm. The share price is down 55 per cent on the 2007 float price. And the miner has shed 76 per cent of its value since 2010. Another terrible buy.

Investors once seemed to assume that a London-listed firm automatically had higher corporate governance standards. One hopes they have now been disabused of that naive belief.

But there's another lesson to be learnt about the nature of modern equity markets here. Relatively few large firms sell shares nowadays to raise capital for investment. Most can expand by using cash reserves or by issuing debt (which is tax-deductible). Many float in order to secure a bumper cash payout for private owners and early investors. This doesn't just apply to miners from the developing world. Look at Glencore and (in the US) Facebook, which made massive fortunes for their founders when they floated in recent years, but have slumped dramatically since.

If you're buying new stock in an established company, you're coming late to the dinner party. Don't expect to be well fed. And certainly don't expect to be lucky.