LONDON, Sept 27 (Reuters) - London's ambitions to attract
foreign-owned mining companies have suffered a sharp blow with
the announcement by Bumi Plc of an inquiry into
alleged irregularities at subsidiaries, just days before a
clamp-down on listing rules.
The Financial Services Authority (FSA) will publish
proposals next Tuesday designed to protect investors and ease
concerns that London-listed companies such as Bumi, an
Indonesian coal venture co-founded by financier Nat Rothschild,
are diluting standards of corporate governance.
Bumi's launch of an inquiry this week into potential
irregularities in more than $500 million of funds follows
unrelated concerns at fellow natural resources firm ENRC
and oil producer Genel.
"Bumi is one of a number of recently listed companies that,
whilst traded on the UK market, is essentially an overseas
business," said PIRC, a corporate governance consultant that
advises pension funds and fund managers with combined assets of
over 1.5 trillion pounds ($2.44 trillion).
PIRC noted concerns shared by regulators and investors
about groups with dominant shareholders in which relatively few
shares are traded on the market. "A number of such companies in
the extractives industries have a very limited free float,
meaning that minority shareholders can struggle to have their
voices heard, and unusual governance practices are difficult to
challenge," it said.
The FSA proposals are expected to tighten rules on reverse
takeovers - often seen as backdoor listings - as well as
addressing the size of free floats, the power of controlling
shareholders, corporate governance and the independence of
They are also likely to prevent cash shell companies, small
listed companies into which larger private groups are typically
folded in a reverse takeover, from joining London's top indices.
Pushing some new listings onto "regulatory light" standard
listings, rather than premium listings, might not seem too
onerous for those seeking cash quickly. But preventing them from
joining the prestigious FTSE indices will protect tracker fund
investors from unwittingly placing cash in riskier companies.
Nevertheless, experts concede the FSA's powers to improve
corporate governance are limited. As it tries to strike a
balance between tightening rules and ensuring London remains
attractive for international companies the principle of "caveat
emptor" - let the buyer beware - rules.
"If you comply with listing rules, there is often very
little the FSA can do," said one source familiar with the
regulator. "It is ultimately up to individual shareholders
whether they buy into that particular company."
Bumi was born after London-listed cash shell Vallar - led by
41-year-old Rothschild, the hedge fund veteran and scion of the
Rothschild banking dynasty, and James Campbell, the former head
of Anglo American's coal arm - engineered a reverse takeover of
Indonesian coal assets and re-listed in 2011.
The aim was to marry the Rothschild name to the Bakrie
brothers, one of Indonesia's most powerful business families, to
create the world's biggest thermal coal company and one of the
largest listed groups on the London bourse.
But as newly-named Bumi joined London's FTSE index, tensions
rose quickly. A leaked letter last year from Rothschild to Ari
Hudaya, then chief executive of both Bumi Plc and an affiliate,
PT Bumi Resources, urged a "radical cleaning up" of
Jakarta-listed PT Bumi Resources.
On Monday the company commissioned London law firm
Macfarlanes to launch an urgent investigation into potential
financial irregularities at its subsidiaries, including PT Bumi
Resources, sending its shares spinning.
Roger Barker, head of corporate governance at the Institute
of Directors, told the Reuters Russia Investment Summit in
Moscow that the affair had called into question the "Rothschild
model" of creating a shell to invest in emerging markets assets.
"Given what has happened to the share price of that
particular vehicle, it hasn't been a good deal for investors,
and investors are going to be looking quite warily at that type
of approach going forward," he said.
The story echoes that of ENRC, which has had two separate
independent probes following whistleblower allegations, one
involving Kazakh and one its international businesses. The
results of the first have been presented verbally to Britain's
Serious Fraud Office. The second is still underway.
Lawyers expect Bumi's Macfarlanes report also to find its
way to the SFO. The fraud squad declined to comment.
Russian firms and companies in the natural resources sector
have increasingly dominated the trickle of businesses going
public in London, raising concerns about investor protection.
The FTSE Group, an index provider owned by the London Stock
Exchange, has already tightened entry requirements for
its UK indices. This responded to investors' worries that
companies with low free floats and hazy corporate governance
standards could join the FTSE 100 index of top blue-chips too
"I welcome the bar being high, so companies that get there,
stay there," said Riccardo Orcel, deputy chief executive of
Russian bank VTB Group.
London has long been considered the listings hub for natural
resources companies. But in an effort to broaden its appeal, it
plans to lift some restrictions for technology listings, paving
the way for a battle with dominant tech hub New York.