LONDON (Reuters) - British financier Nathaniel Rothschild could raise his stake in the troubled Indonesian coal firm he co-founded, now called Asia Resource Minerals (>> Asia Resource Minerals PLC), if the group takes up his proposal for a share sale next year to help cut debt.

ARMS said in a statement on Monday that Rothschild had offered to underwrite the proposed sale, potentially pouring yet more cash into a mining venture that has dented his reputation and cost him tens of millions in paper losses.

ARMS' board will discuss the proposal on Tuesday.

Rothschild set up Bumi with Indonesia's prominent Bakrie family in 2010, but, dragged down by falling coal prices and bitter boardroom battles, the firm has plummeted in value.

The company currently has a market value of less than $90 million (58 million pounds) but a debt pile worth almost $1 billion. In August, citing adverse market conditions, it scrapped a bond issue which would have helped refinance $450 million in debt due July 2015.

Rothschild, however, is betting on investor demand for Bumi's debt and a rebounding share price.

Earlier this year ARMS finalised a restructuring which ended up with the departure of the co-founding Bakrie family from the London-listed firm and left it owning only one asset, its Berau operation in Indonesia.

ARMS now faces another major change.

Its largest shareholder, Indonesian businessman Samin Tan, is in talks to sell his stake to help repay a debt of almost $1 billion to Standard Chartered (>> Standard Chartered PLC) and Raiffeisen .

Rothschild, a member of the prominent European banking family, currently owns roughly 18 percent in ARMS, making him the second-largest investor.

He said in a weekend interview with Bloomberg that the share sale would likely be supported by major investors including Austria's Raiffeisen, which last month took control of voting rights for 23.8 percent owned by Tan, after he failed to meet the terms of a loan. He also plans to bring in a new, unnamed, "cornerstone" investor, according to the report.

Shares in ARMS, down almost 70 percent this year, were up more than 5 percent after the announcement.

(Editing by Clara Ferreira Marques)

By Silvia Antonioli