You can see why PwC might feel nervous about Bumi, the Indonesian coal miner and FTSE 250 constituent. The accountant signed off the June 2011 prospectus subsequently blighted by investor infighting and allegations of fraud.

Last updated: April 22, 2013 8:51 pm

Lombard: PwC’s grounds to feel anxious

By Jonathan Guthrie

Accountant signed off Bumi’s June 2011 prospectus

You can see why PwC might feel nervous about Bumi, the Indonesian coal miner and FTSE 250 constituent. The accountant signed off the June 2011 prospectus for the creation of a business subsequently blighted by investor infighting and allegations of fraud. The recriminations appear to have sensitised the auditor, whose punctiliousness has resulted in Bumi delaying its annual results and suspending its shares. This action is extremely unusual. Most companies report their numbers with clockwork regularity. Bumi’s inability to do so further undermines the credibility of a group whose board narrowly dodged removal by Nat Rothschild and other rebel shareholders in February. Suspension means there is no transparent price in the shares, leaving investors holding an illiquid investment. Trading will not recommence on the London stock market until Bumi has dispelled the doubts that PwC has over Berau, its Indonesian subsidiary. The auditor is worried that ex-executives of Berau signed contracts with suppliers and customers that were never disclosed to the parent group. Quantifying these liabilities, if any, will take too long for Bumi to meet an obligation to report results within four months of the year-end. Nick von Schirnding, Bumi chief executive, hopes to publish 2012 results in May. In June, investors should supposedly have the chance to vote on a proposal for the Bakries, a powerful Indonesian family, to buy out Bumi’s 29 per cent stake in Bumi Resources, another coal miner, in return for cash and the cancellation of their shareholding in Bumi. Will everything happen to schedule? A pessimist would say that if anything can go wrong for Bumi, living embodiment of Sod’s law, it generally does. Pressure is mounting on City advisers who brought foreign miners to list in London. Two of them, Bumi and Eurasian Natural Resources Corp, have become mired in corporate governance rows and allegations of wrongdoing. PwC is auditor to both.

Last updated: April 22, 2013 7:39 pm

Bumi shares halted amid payments concern

By Christopher Thompson

Bumi, the Indonesian coal miner founded by Nat Rothschild, has suspended its shares as it tries to account for tens of millions of dollars in payments to local landowners. Bumi said in a statement on Monday that trading in its shares would be suspended until the publication of its 2012 annual results, which has been delayed indefinitely.“Bumi expects that this suspension will be lifted on publication of results,” the company said. “The company’s priority and focus is the production of results at the earliest possible date in May.”

Earlier this month, the FTSE 250 company said it would delay the publication of its annual results for a second time – originally scheduled for the end of April – because of $38m in unaccounted land compensation payments made at its Berau subsidiary, which owns three thermal coal mines on the resource-rich Kalimantan island in Indonesia.

Following that announcement, the company’s finance director Scott Merrillees said he would step down at the company’s annual meeting in June.

On Monday, Nick von Schirnding, chief executive, said Bumi was contacting all its counterparties to verify their contracts. He added that an audit of contracts could give rise to other, unknown liabilities.

“I’m not in a position to say there are no non-disclosed liabilities – I wasn’t in charge last year [so] I don’t know what I don’t know,” he said. “Verifying the balance sheet is a necessary step to rebuild investor trust and to achieve that a temporary suspension in trading is required.”

Bumi’s accountant is PwC. Ernst & Young and Singapore-based law firm Lubis have also been hired to help with the audit, according to the company.

Cailey Barker, an analyst at Numis, said the suspension was a “slight negative” but it would not substantially effect Bumi’s coal mining operations.

“The review is not expected to have a material impact on operations,” he said in a research note. “[I’m] negative on the delay [to the annual results] but positive to try and provide better transparency and rebuild confidence.”

Bumi first announced it would postpone the publication of its annual results in March, pending a review of the company’s balance sheet amid allegations of irregularities.

Bumi was formed in 2010 in a $3bn deal that involved Indonesian coal assets linked to the country’s influential Bakrie family reversed into a cash shell formed by Mr Rothschild, the financier.

However, the company’s share price has declined 52 per cent in the past year amid boardroom infighting and weaker coal prices.

In February Mr Rothschild was defeated in his attempt to replace the board of Bumi.

Mr von Schirnding said the company is pursuing a separation of the Bakries’ assets but this cannot happen before Bumi’s annual results are published.

Bumi shares closed at 259.3p on Friday.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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