When you love a girl, get
married; but when you really want to know her, get
divorced. - Anon
A few weeks ago, I
wrote about the events leading up to the sharp
fall in the price of shares of Bumi PLC, the
London-listed company that was founded by Nat
Rothschild as a cash shell which then acquired the
shares of the Indonesian Bakrie group's coal
business (see A
Tale of Two Princes, Asia Times Online,
September 29, 2012).
Much water has flown
under the bridges since then, and more to the
point for the two families, many bridges have
flown under the water too.
In response to
what the Bakrie group saw as scurrilous
allegations, the group
decided to effect a reversal of all the
transactions that had been done together: a.
Firstly a share swap that would remove the Bakrie
family holdings in the London listed entity (Bumi
PLC) in return for the entity's holdings of the
Bakrie family controlled vehicle in Indonesia
(Bumi Resources); b. Secondly a cash purchase
of the London listed company's remaining
shareholding in the Indonesian entity (Bumi
Resources) to be completed by year-end 2012;
c. Lastly a purchase of the remaining
Indonesian coal asset (Berau Coal) from Bumi PLC
by the Bakrie family; d. Due to the reversals
of the transactions, the group also formally
requested Nat Rothschild to relinquish his "bonus"
shares that had been granted in Bumi PLC due to
the above successful transactions in the first
place
The last bit was a corporate
governance zinger that appears to have been meant
to disallow any voting by Nat Rothschild on the
proposal on the grounds of it being a matter of
self-interest and hence requiring directors to
recuse themselves.
In any event, the first
three points left a lot of unanswered questions
not the least of which was the source of funds for
the massively leveraged Bakrie family to fund the
purchases of their previous stakes in Bumi
Resources and Berau Coal from Bumi PLC. A simple
back of the envelope calculation shows that the
two deals would have cost the group over US$1
billion; on top of a mountain of maturing debt of
over $1 billion across the Bakrie group already.
Then came the questions about valuations -
obviously the group had mooted the purchases of
these assets back from Bumi PLC well after prices
had declined by over 50%. In effect, this meant
that the cash shell in London would end back with
cash, but a lot lower than what had been raised
and paid to the Bakrie family in the first place.
Delving a little closer into the details,
it also became quite clear that the biggest
monetary losses would have been on the investors
who bought the shares last; namely fellow
Indonesian tycoon Samin Tan, who bailed out the
Bakrie family by purchasing part of their stake in
Bumi PLC for $1 billion when loans to certain
private banks fell due last year. This had been
done through a bank loan, that would have left Tan
nursing losses of over half the amount. Curiously
though, Tan promised to remain with his stake in
Bumi PLC and effectively allow Bakrie to purchase
back their coal businesses for the proverbial
song.
Still, Tan seemed to be smiling
through it all - and sure enough, the Internet in
Indonesia exploded with suggestions that a sweet
back deal had already been structured by which
(some opined) Berau Coal once purchased by the
Bakrie family would be ultimately handed over to
Tan.
The other prince Meanwhile,
the other prince was left stewing with the
attempted outmaneuvering by the Bakrie family and
the resulting losses to both wealth and reputation
from the grand failure of the overall deal that
would crystallize losses for investors including
the Rothschild family.
So he took up the
pen again; writing a strong letter to the board
through which he resigned as well as assigned
blame on the chairman, Samin Tan, for allowing
minority investors to get rolled over by the
Bakrie family. In effect, the corporate governance
allegation must have given Rothschild the perfect
excuse to exit the company while (for a later
date) giving him an excuse to rationalize if not
justify the losses.
Whatever he may try to
justify, the cold facts of the day don't make for
good reading: Rothschild lost a bundle but that
wasn't his main issue; it was rather that the
fundamental strategy - to purchase undervalued
resource assets, improve corporate governance and
thereby extract more value - just went to pot
grandly.
Along the way, both ego and
assumptions were destroyed leaving many a pauper
but none the wiser arguably.
Why all
the drama The larger question though begs -
why do Asian billionaires need to undertake such
risky moves in the first place? Specifically, why
is the governance discount so strong in Asia, and
how does it get cured over the longer term?
All sorts of reasons are offered, not the
least of which is the greater transparency and
more intensive reporting requirements in European
and US markets that help to avoid the kind of
shenanigans some Asian tycoons have become all too
famous for. There is a stern accounting type
somewhere wagging a finger and saying SinoForest
(see Say
no to Sino?, Asia Times Online, July 12, 2011)
to an eager group of trainees somewhere out there.
Then again, as the various experiences in the
West have shown - Enron, Worldcom, Royal Bank of
Scotland, Lehman Brothers, UBS, Societe Generale
(see The
Rogue and the Pogue, Asia Times Online,
January 26, 2008) among others - greater
transparency isn't the panacea that champions of
these markets like to believe it is. Fundamentally
flawed businesses end up lying, and many a time
get away for extended periods of time before they
are found out. In that respect, there is no
difference between such scandals and those that
Asia has produced
Another reason is
equally germane - large pools of capital in the
West such as pension funds, simply aren't allowed
to invest in "emerging" markets, thereby leaving
room for such companies to go through overseas
listings in order to become more appealing to a
wider group of investors.
These are
essentially non-tariff barriers for capital; but
nevertheless a bill that many investors and
companies have been willing to pay for a long
time.
However, as the experience of
various Asian markets has shown - Tokyo, Seoul,
Taipei, Hong Kong and now Singapore; it is indeed
possible to grow one's way out of the discount by
resolutely staying on the straight and the narrow.
Both market regulators and big Asian businesses
would need to resolve to work together and remove
the discount gradually.
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