Bumi plc outcome is positive, says company's broker JP Morgan

Bumi plc should focus on separating from the Bakrie Group and restructuring its board after shareholders rejected proposals by co-founder Nathaniel Rothschild, according to the company's advisor JP Morgan on Friday.

At a highly anticipated meeting Thursday, Rothschild lost his bid to replace 12 of 14 members of the board of the troubled Indonesian coal mining firm.

Shareholders voted against 19 of the financier's 22 resolutions, including one that would have seen him return to the board. He unexpectedly stepped down last year following company infighting.

Chairman Samin Tan survived a vote to remove him but announced he was resigning anyway.

Bumi said it would replace Tan with a new independent Chairman who has experience in the London market as the firm pursues its plan to separate from the Bakries.

Nalinkant Rathod, a representative of the Bakries, and Jean-Marc Mizrahi, also left the board while Richard Gozney, a former British ambassador to Indonesia, was elected as a Non-Executive Director

"The announcement that 19 of the 22 proposals put forward on behalf of NR Investments [Rothschild's company] were voted down at yesterday's Bumi plc extraordinary general meeting should be seen as a positive, in our view, despite the tightness of the votes," JP Morgan said Friday.

"Management's focus should now be able to switch to effecting the Bakrie Group separation and restructuring the Board, both important prerequisites to re-framing the investment case in our view."

Bumi was formed in 2010 when Indonesia's influential Bakrie family reversed their coal mining assets into Rothschild's London-listed cash shell, Vallar.

However, Rothschild and the Bakries had a falling-out following an investigation into financial wrongdoing.

The two have since been at loggerheads over the future of the company.

The Bakrie Group has agreed to cancel its indirect 23.8% stake in exchange for Bumi's 10.3% holding in Asia's biggest thermal coal exporter PT Bumi Resources.

Bumi will also sell the remaining 18.9% interest it holds in Bumi Resources to the Bakrie Group for $278m.

Rothschild has tried to claw back control of Bumi through his proposal to oust members of the board but said his chances were scampered after major shareholder, Indonesian businessman Rosan Roeslani, sold his 10% stake just days before the meeting.

Roeslani disposed of his interest after the UK's Takeover Panel ruled in December that he was acting "in concert" with the Bakrie family and ordered the party to sell down their majority stake to 29.9%.

His stake was sold to Avenue Asia Capital Management, Flaming Luck Investments, and Argyle Street Management Ltd and Argyle Street Management. The panel ruled that it did not consider the three to be acting with the Bakries so they were able to vote at the meeting.

Following the results of the vote, Rothschild called on Bumi's eight independent non-executive directors to resign. He said they had "demonstrably lost the confidence of the majority of non-aligned shareholders".

Bumi's Chief Executive Nick von Schirnding disputed the claims, saying the board received a mandate from the majority of independent shareholders.

"I just really want to put these two months of infighting behind us and move on, because our long-suffering shareholders deserve better," he said.

JP Morgan retained its 'underweight' recommendation as the broker said "uncertainty remains over Rothschild's next move, the pace of the separation talks, a tepid near-term coal market outlook and limited discounted cash flow valuation support".

Analysts at Investec suspected most investors would be glad to see an end to the saga. The broker was also upbeat about the future of the company as it expects Bumi will reap rewards from strong coal production at its subsidiary, Berau Coal Energy.

"The direction being pursued by the board will leave the company in control of 85% of Berau Coal, which is aiming for production of 30m tonnes per annum," Investec stated.

"Bumi will still therefore be the largest pure coal play on the London Stock Exchange, not necessarily a positive in the current thermal coal market, but a strategic position nonetheless."

Liberum analysts also chimed in, saying it fails to see how shareholders won't view a separation between the Bakries and Bumi as a valuable move.

The Bakries have paid $50m into an escrow account as a deposit in its deal to break free from Bumi, which Liberum said "bodes well for the timely transfer of funds".

"The deal will bolster Bumi's balance sheet, allow for refinancing of Berau debt saving greater than $50m in annual interest costs (Liberum estimate) and reduce exposure to Bumi Resources which is potentially facing a cash call," the broker said, reiterating a 'buy' rating for the miner.

Shares fell 5.01% to 371.70p at 12:50 Friday.

RD