Schroders' Richard Buxton has criticised the Bakrie family’s proposal to buy back their assets from troubled mining company Bumi, although he has warned the investigation into the firm’s alleged financial impropriety could thwart their plans.
The head of UK equities at Schroders and manager of the Schroder UK Alpha Plus fund, a Citywire Selection pick, exclusively told Wealth Manager he was ‘surprised’ when Bumi did the initial Indonesian coal deal with the Bakries a couple of years ago.
The Bakrie family sold a stake in the country’s largest coal exporter into the original deal back in 2010, and has proposed to buy back the assets in a move that would end their ties with the mining group.
The offer is being proposed by the brothers in light of ‘the trading performance of the company’s shares and the irreconcilable differences between the original promoters of the company and the current major shareholders of the groups…’, they said in a letter to the independent directors of London-based Bumi.
Buxton, who owned 2% of the firm, said: ‘Them attempting to buy it all back as coal prices are significantly lower [than] before the deal was done is not acceptable.'
However, the board of Bumi is investigating claims made in a dossier sent to the non-executive directors by a whistle-blower alleging financial impropriety at its main affiliate, PT Bumi Resources, in which Bumi has a stake. The investigation is likely to be completed by the end of this month.
‘If the investigation results are made public, it could be difficult for the Bakries to carry out their proposal,’ said Buxton (pictured).
‘It’s a question of timing for the Bakrie proposal, to buy it back before the investigation becomes public.’
Buxton’s comments come after Nathaniel Rothschild resigned from the board of Bumi after the offer from the Bakries to cut ties with the company, and after BlackRock's Evy Hambro sold 10 million Bumi shares.
In a letter to Bumi’s chairman Samin Tan, Rothschild said the proposal is obviously not in the interests of minority shareholders and he therefore finds it impossible to stay on as a director.
Buxton said: 'I think he [Rothschild] is concerned the independent directors may want to save face by countenancing some form of transaction.'
Despite governance concerns surrounding the firm, which Buxton said have been on the rise since the Bakries pledged their stock, the firm is fundamentally a good investment.
Buxton invested 2% in mining company Vallar, set up by Nathaniel Rothschild, when it floated in 2010. Vallar then became Bumi the following year, after a share-swap deal.
'The interesting thing is why did we buy Vallar in the first place?’ said Buxton, even though recent events have caused a drag.
‘It was not just the backing of Nat Rothschild – the independent directors are pretty experienced with strong track records in the mining and oil industry,’ he added.
Butxon said the rationale behind Vallar were the opportunities to acquire entities in the mining industry and the chance to ramp up volume growth.
‘I like coal in the long run,’ said Buxton, adding that around 70% of China’s manufacturing needs are met by coal.
However, the stock has fallen peak to trough from around £14 a share last year to around £1.50 at the beginning of this month.
‘The only thing you can do is take the hit and move on,’ said Buxton.
Citywire A-rated manager , who runs BlackRock’s BGF World Mining fund, sold down his stake in Bumi ahead of news that Rothschild had resigned from its board.
The company said in a London Stock Exchange announcement: 'Bumi announces that Nathaniel Rothschild, a non-executive director of the company, has today resigned from the board of the company with immediate effect.'
Hambro previously held 10 million shares in the company worth £24.6 million at a share price of 246p, accounting for around a 5% stake in the firm.
Buxton has delivered 26.4% over three years to the 17 October, versus the benchmark’s 25.8%.