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Company Bumi plc
TIDM ARMS
Headline

Statement re Investigation

Released 07:20 22-Jan-2013
Number 0677W07

RNS Number : 0677W
Bumi plc
22 January 2013
 



Not for release, publication, distribution or dissemination, in whole or in part, in, into or from any jurisdiction outside of the United Kingdom

 

Bumi plc

22 January 2013

 

Bumi plc

("Bumi" or the "Company")

 

Summary

·        Macfarlanes has completed its investigation and reported its final conclusions to the Company

·        Circumstantial evidence supports a number of the allegations but, due to the unwillingness of key parties to be interviewed and provide information as well as provenance issues, the allegations have not been substantiated

·        The Company is unable to release the detail of the Macfarlanes report due to exposure to unacceptable legal risks that exist (primarily in Indonesia) as a result of the undisclosed provenance of the materials which formed the basis of the investigation, together with the unsubstantiated nature of the allegations

·        The Board intends to address the issues raised by the investigation by all means available to it

·        The Company has been taking, and continues to take, significant actions including engagement with the Indonesian authorities, meeting with the UK Serious Fraud Office, and investigating all recourse options available to it

·        A substantial majority of the matters which were the subject of the investigation pre-date the acquisition by Vallar PLC of its interests in Bumi Resources and Berau, and a significant proportion of the assets which were the subject of the investigation have previously been written down to zero in the accounts of the Company as at 31 December 2011

·        The Company's audit committee has considered whether, in light of the Macfarlanes report, any further asset write-downs were required and believes that, if necessary, these are not likely to be material given the extensive write-downs already made in respect of certain development assets

·        The Board is currently investigating why the due diligence did not reveal the issues which were the subject of the investigation and notes that, prior to completion of the original transaction, the identification and assessment of acquisition opportunities (including due diligence) were outsourced to Vallar Advisers LP, an entity led by Mr. Rothschild

 

Background

In September 2012, Mr. Rothschild passed materials of undisclosed provenance to one of the Company's independent non-executive directors.  After initial consideration of the materials, Bumi announced on 24 September 2012 that it had become aware of allegations concerning, among other matters, potential financial and other irregularities in the Company's Indonesian operations.  Bumi immediately established an investigation committee (the "Investigation Committee") comprising certain of the independent non-executive directors of the Company and instructed Macfarlanes LLP ("Macfarlanes") to commence an in-depth independent investigation of the allegations (the "Investigation").  The principal purpose of the Investigation was to examine allegations as to the misuse and/or misappropriation of development funds and other assets of PT Bumi Resources Tbk ("Bumi Resources"), PT Bumi Resources Minerals Tbk ("Bumi Resources Minerals") and PT Berau Coal Energy Tbk ("Berau").

 

The Company is pleased to announce that Macfarlanes has completed the formal stage of the Investigation and has reported its final conclusions to the Company.  In summary, those conclusions are that there is circumstantial evidence to support a number of the allegations, but that they have not been substantiated for the reasons explained below.  In the light of the findings of the Investigation, the Company expects to take a number of significant actions.

 

Provenance

Despite it being one of the critical focuses of the Investigation, Macfarlanes has been unable to make contact with the original source of the materials provided to the Company.  In this regard, the Company notes that the materials which formed the basis of the Investigation were first passed to one of the independent non-executive directors by Mr. Rothschild, who stated that they had originated from a whistleblower.  Mr. Rothschild has further stated that he did not pay for or otherwise procure the obtaining of the materials.  Mr. Rothschild directed Macfarlanes to a law firm representing the person or entity from whom he says he received the materials.  That law firm explained that it represented an (unnamed) well-known investigation agency, but that its client was not the original source of the materials and that it was unable to confirm the identity of that source or how the source had obtained the materials.  Mr. Rothschild has told Macfarlanes that he considers himself bound by a duty of confidentiality to whomever provided him with the materials and that he cannot, therefore, reveal the source's identity.

 

This lack of clarity regarding the provenance of the materials provided by Mr. Rothschild is clearly unsatisfactory.  Macfarlanes and the Board of the Company (the "Board") have encouraged Mr. Rothschild to identify the person who, or entity which, provided the materials to him in order that Macfarlanes can seek to substantiate the allegations and, indeed, the integrity of the materials themselves, but so far to no avail.  As previously announced, the Company has conducted a technical examination which has shown that information has been obtained illegally by email hacking.  The Board believes that there is no credible explanation other than that a large part or all of the materials which formed the basis of the Investigation were obtained by such means.

 

Conduct of the Investigation

Following the announcement of the Investigation on 24 September 2012, the Company established the Investigation Committee.  The Investigation Committee is chaired by Sir Julian Horn-Smith, the Senior Independent Director of the Company.  The other members of the Investigation Committee are Steven Shapiro, Graham Holdaway and Sir Graham Hearne, who has also at times taken the chair of the Investigation Committee.  The Investigation Committee has been responsible, on behalf of the Board, for the conduct of the Investigation and has liaised at all times closely with Macfarlanes which has undertaken the Investigation.

The matters which were the subject of the Investigation are extremely complex and Macfarlanes has spent many weeks interviewing available key witnesses (both in the UK and Singapore), reviewing significant quantities of documentation, liaising with other professionals who have provided assistance to the Investigation and engaging with regulators.

The Investigation Committee is satisfied that the Investigation has been conducted by Macfarlanes in a rigorous, thorough and independent manner, and has reported the findings of the Investigation to the Board.

The starting position of the Board has always been to disclose to shareholders as much detail relating to the Investigation as possible. However, the undisclosed provenance of the materials causes significant issues as it is a criminal offence in Indonesia to disseminate information that has been obtained illegally by hacking even if the disseminating party had no involvement in securing the information originally.  Therefore the Board has been advised that publicly disclosing the detail of the Macfarlanes report would expose the Company to an unacceptable level of legal risk.  The key concerns relate to the laws of defamation in Indonesia, which are very broad and carry criminal sanctions.

 

Any new board of the Company will face the same legal risks if it were publicly to release the detail of the Macfarlanes report.

 

Results of the Investigation

The Company confirms that there is circumstantial evidence to support a number of the allegations but they have not been substantiated. The Company also confirms that a substantial majority of the matters which were the subject of the Investigation pre-date the acquisition by Vallar PLC of its interests in Bumi Resources (which completed on 4 March 2011) and Berau (which completed on 8 April 2011) and that  the vast majority of the matters which were the subject of the Investigation relate to Bumi Resources rather than Berau.

 

Bumi Resources

As noted above, there is circumstantial evidence to support a number of the allegations.  However, Macfarlanes has been significantly hindered in its conduct of the Investigation by certain key individuals at Bumi Resources declining to attend interviews with Macfarlanes or to provide answers to written questions.  This has meant that potentially important information relevant to many of the allegations relating to Bumi Resources has not been available to Macfarlanes and that it has not been possible to reach firm conclusions in respect of them. The Company has sought to use all appropriate means to require such attendance but has, to date, been unable to do so.  Certain of those parties have sought to justify their refusal to attend interviews with Macfarlanes by reference to the ongoing independent audit of Bumi Resources in respect of the financial years 2010, 2011 and 2012 ordered by the Indonesian court following the commencement of the Investigation (the "Audit Process").  However, Indonesian counsel has advised that there is no proper basis for those parties refusing to attend interviews on those grounds.

 

Similarly, both before and after the start of the Investigation, the audit committee of the Company has spent a considerable amount of time and effort seeking satisfactory information from Bumi Resources about many of the matters which were the subject of the Investigation, but that information has for the most part not been provided to the Company.  A significant proportion of the relevant assets were written down to zero in the accounts of the Company as at 31 December 2011.  The Company reminds shareholders that, having reassessed its level of influence over the management and conduct of the business of Bumi Resources, it announced on 5 November 2012 that it was no longer appropriate for the Company to account for its shareholding in Bumi Resources as an associate, and that instead it would be accounted for as an investment under IAS 39.  The Company's audit committee has considered whether, in light of the Macfarlanes report, any further asset write-downs were required and believes that, if necessary, these are not likely to be material given the extensive write-downs already made in respect of certain development assets.

 

Berau

Three of the allegations which were the subject of the Investigation relate to Berau.  The Company's ability to investigate those allegations which relate to Berau is greater than its ability to investigate and take action in respect of those allegations which relate to Bumi Resources (given its controlling stake in Berau).

In connection with these three allegations (i) at the Company's request, Berau has confirmed to the Company that an arrangement relating to consulting fees being paid to a third party has been terminated, (ii) third party assurance has been sought that certain coal off-take arrangements are on acceptable market terms and (iii) the Company will be pursuing potential claims against the fund manager to whom Berau entrusted certain investment monies, and intends that Berau should instigate legal action as necessary. The Company is also considering potential claims arising out of the warranties given by PT Bukit Mutiara in favour of the Company in the share purchase agreement relating to Berau.

Accounting treatment

 

Whilst reiterating that the allegations which were the subject of the Investigation have not been substantiated, the Company also reminds shareholders that it has previously taken a conservative and cautious approach to the accounting treatment of certain matters.  The appendix to this announcement sets out further detail in this regard.

 

Next steps consequent upon the Investigation

The Company continues to take the allegations extremely seriously and will make a considered decision on seeking recoveries based on careful evaluation of the associated costs and risks with a view to maximising shareholder value.  The Company is also determined to take all appropriate action open to it in respect of the findings of the Investigation, including by seeking to establish means to prove or disprove the allegations and, among other things, by undertaking the following actions:

OJK, the Indonesian capital markets regulator

Due to the undisclosed provenance of the materials that Mr. Rothschild provided to the Company (which could  give rise to criminal liability in Indonesia) and also the fact that the allegations have not been substantiated, the manner in which the Company engages with appropriate Indonesian authorities has been considerably complicated.  Notwithstanding this the Company is in the process of engaging with the appropriate authority there, OJK (the regulator of the Indonesian capital markets).

Bumi Resources audit process

The Company is planning to submit to the experts conducting the Audit Process the same information resulting from the Investigation that it will be providing to OJK.  However, this is subject to the Company overcoming the same criminal liability complications.

The Serious Fraud Office

The Company has met with the UK Serious Fraud Office and this engagement is ongoing.

Other potential litigation

The Company is also investigating, on an urgent basis, other potential claims arising out of the matters which were the subject of the Investigation, and does not intend to give up on pursuing any matter where there is a realistic prospect of recovery from the parties involved.

UK Takeover Panel

The Board has already acknowledged the statement by the UK Panel on Takeovers and Mergers (the "Panel") regarding the existence of a concert party between the Bakrie Group and PT Bukit Mutiara. The Board notes that the next stage of the Panel investigation will be to establish any culpability and appropriate disciplinary action, which the Board assumes will include a focus on Vallar PLC's principal adviser at that time, Vallar Advisers LP, which was led by Mr. Rothschild.

Mr. Rothschild

The Company notes Mr. Rothschild's commitment, made in the announcement released on 7 January 2013 by NR Investments Limited, to make the findings of the Investigation public as soon as possible if Mr. Rothschild and his associates were to gain control of the Board .  As noted above, any new board of the Company will face the same legal risks (primarily in Indonesia, where criminal liability could result) if it were publicly to release the detailed findings of the Macfarlanes report.

 

It was essential to the conduct of the Investigation that it was undertaken on a strictly confidential basis.  Mr. Rothschild was aware of that fact.  Notwithstanding that, Mr. Rothschild has commented on the Investigation to the media.  Macfarlanes and the Company would have expected Mr. Rothschild to respect the confidentiality of the Investigation and are disappointed that he has not done so, which has not only been unhelpful to the progress of the Investigation but is also inappropriate given his former position as a director of the Company and his desire to be reinstated as such.

 

The Company notes the recent public criticism of the Board by Mr. Rothschild.  The Company does not believe that Mr. Rothschild or any different board of directors proposed by him would be able to secure the co-operation of the relevant individuals that would allow these matters to be pursued with any greater success. This is particularly the case given the fundamentally broken relationship between Mr. Rothschild and the Company's Indonesian stakeholders.

The Company also notes the recent public criticisms of Samin Tan made by Mr. Rothschild.  Macfarlanes has confirmed to the Company that Samin Tan and the relevant Borneo representatives have co-operated fully with the Investigation.  Macfarlanes has noted that they spent considerable time answering questions that are relevant to the Investigation, both orally and in writing, as well as providing Macfarlanes with other input for its report.  Samin Tan has also proactively given Macfarlanes assistance in seeking the co-operation of other relevant individuals in connection with the Investigation. 

As noted in the prospectus in relation to the IPO of Vallar PLC, prior to completion of the acquisition of its interests in Bumi Resources and Berau, most of Vallar PLC's operating functions, including the identification and assessment of acquisition opportunities (including due diligence), were outsourced to Vallar Advisers LP, an entity led by Mr. Rothschild.  Accordingly, Vallar Advisers LP was responsible for identifying Bumi Resources and Berau as potential acquisition targets for the original transaction, co-ordinating and supervising the due diligence on those acquisitions, and structuring and co-ordinating the negotiation of the original transaction, and it also recommended that transaction to the board of Vallar PLC.

Sir Julian Horn-Smith, the Senior Independent Director of the Company, commented as follows:

"Macfarlanes has reached important conclusions as a result of their investigation of these extremely complex matters.  In light of those conclusions, the Board will pursue claims wherever appropriate and will also continue to work closely with the appropriate regulators, both in the UK and in Indonesia.  The Board intends to proceed with the proposed Bakrie separation as a first step to restoring shareholder value, which step it does not believe Mr. Rothschild's proposed board can deliver."

The Company will make further announcements as appropriate.

 

For further information, please contact:

Finsbury
Ed Simpkins
Tel: +44 (0) 20 7251 3801

 



APPENDIX

 

The table below sets out the accounting treatment that the Company has previously adopted in respect of certain matters, presented on a 100% basis.

 

 

Bumi Resources

Berau

 

$'m

(100% basis)

$'m

(100% basis)

 

 

 

1) Fair value adjustments representing asset write downs

 

 

 

Available for sale financial asset

- Investment in Chateau ASEAN fund

 

 

75

 

Exploration and evaluation assets

- Largely Gallo hydrocarbon prospects in Yemen

 

390

 

 

Other non-current assets

- Business development funds

 

247

 

 

 

 

 

637

75

 

 2) Asset write downs recorded in the period, post acquisition

 

 

 

Exploration and evaluation assets

 

 

34

 

 

Other current assets

 

 

110

 

 

 

 

 

               144
 

75

 

 

 

 

781

75

 

 

                                     

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Statement re Investigation - RNS