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: Customer Accounts Executive

£14000 - £18000 per annum: Recruitment Genius: This is an opportunity for the ...

Recruitment Genius: Team Administrator / Secretary - South East

£14000 - £17000 per annum: Recruitment Genius: Full time Administrator/Secreta...

Recruitment Genius: Parts Advisor

£16500 - £18500 per annum: Recruitment Genius: One of the leading Mercedes-Ben...

Recruitment Genius: Software Developer

£27500 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...

Day In a Page

Read Next
 

Errors & Omissions: a duchess by any other name is just wrong

Guy Keleny
A teenage girl uses her smartphone in bed.  

Remove smartphones from the hands of under-18s and maybe they will grow up to be less dumb

Janet Street-Porter
Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor