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.Reuse content