Editorial: Bumi is the canary in the City's coalmine

Nat Rothschild's company joins a list of foreign miners with questionable governance

Share
Related Topics

Even judged by the standards of, say, BP's troubles with its business in Russia, the short life of Nat Rothschild's mining venture has been an unusually torturous affair. Amid accusations of corruption and threats to sue and counter-sue, the battle over Bumi has pitted the billionaire scion of the renowned banking dynasty against a trio of powerful Indonesian brothers. It has also yielded some sharp lessons – not just for Mr Rothschild and his investors, but, more importantly, for Britain's financial regulators.

The saga began in 2010 when the youngest son of the Rothschild family set up a company called Vallar, through which he hoped to buy natural resources assets in emerging markets. Mr Rothschild listed the group on the London Stock Exchange, raised £707m, and promptly bought into two Indonesian coal mines owned by the Bakrie brothers. Thus, Vallar became Bumi and, for a while, all went well.

But the honeymoon did not last. Tensions between Mr Rothschild, the Bakries and the board steadily increased, finally exploding last autumn with the claim from Mr Rothschild that hundreds of millions of pounds was missing from a Bumi affiliate company. Both the allegations themselves and the boardroom mud-slinging that followed them are inordinately complicated – as the analysis in our Business pages today makes clear. But the outcome needs no detailed explaining: Bumi's stock has plunged in value and Mr Rothschild's investors have lost the lion's share of their money.

The 41-year-old financier must accept a considerable slug of the blame for the debacle. Even without the benefit of hindsight, Mr Rothschild's signing the deal with the Bakrie brothers after just two meetings, despite question marks over their reputation, looks more reckless than decisive. Even more so, given that he had not inspected the mines in question.

That said, Mr Rothschild alone does not bear all the responsibility. After all, the £700m-plus was raised using a so-called "cash shell" – that is, a company that exists only to elicit funding – and there were almost no restrictions as to what he might do with it. Granted, Mr Rothschild has had some successes in the past – notably his Atticus hedge fund (before it was torpedoed by the financial crisis, that is). But for investors to have handed over their money with so few strings attached is a carelessness that begs for a lecture on caveat emptor.

There are also broader lessons here, however. Mr Rothschild's big idea was to use a London-listed "shell" company to enable investors to put their money into resource-rich emerging markets without risking their sometimes questionable corporate governance. Such a plan might make sense on paper. In practice, Mr Rothschild's stake was not enough to counterbalance that of the Bakries, his power base was insufficient to sway the Bumi board, and London's rules were not enough to tame behaviours so far away.

Most concerning of all is that Bumi's woes are not a one-off. Indeed, the company has merely added its name to the growing number of foreign mining companies listed in London that have drawn questions about their corporate governance. Unless both the London Stock Exchange and Britain's financial regulators up their game – beefing up monitoring activities and seeking extra powers to exclude companies that break the rules – the aura of respectability that is a central attraction of the London market will be dangerously eroded. And UK plc will be the loser. The fate of Bumi is a matter for Mr Rothschild and his rather unwise investors. But it is a canary in the coalmine for the City.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Account Manager

£20000 - £35000 per annum: Recruitment Genius: This full service social media ...

Recruitment Genius: Data Analyst - Online Marketing

£24000 - £35000 per annum: Recruitment Genius: We are 'Changemakers in retail'...

Austen Lloyd: Senior Residential Conveyancer

Very Competitive: Austen Lloyd: Senior Conveyancer - South West We are see...

Austen Lloyd: Residential / Commercial Property Solicitor

Excellent Salary: Austen Lloyd: DORSET MARKET TOWN - SENIOR PROPERTY SOLICITOR...

Day In a Page

Read Next
A sculpture illustrating the WW1 Christmas Truce football match in Liverpool  

It's been 100 years since the Christmas Truce, but football is still changing the world

Jim Murphy and Dan Jarvis
In 1215 the Magna Carta forced the English King (at the time King John) to respect the laws of the land and guaranteed rights and protections to his subjects  

Magna Carta will be 800 years old next year – the perfect reminder of the rights and freedoms we must hold dear

Nigel Farage
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there