Mumbai: India’s GVK Power and Infrastructure is in advanced talks with Standard Chartered and ICICI Bank to fund its acquisition of two Australian coal mines owned by Hancock Prospecting, two sources with direct knowledge said.
GVK Power will have to pay about $1.3 billion to Hancock to seal the deal and it will have to arrange $6 billion to $7 billion over a period of five to six years in working capital and other investments, the sources told Reuters on Thursday.
The sources declined to be named because the information is not public yet.
GVK, which is in exclusive discussions with Hancock for the Alpha Coal and Kevin’s Corner mines, is talking to Standard Chartered and ICICI Bank, India’s No. 2 lender, to raise the initial investment of $1.3 billion, the sources said.
“This deal is not cheap for a company like GVK. Even the initial amount that GVK will have to pay is more than the market capitalization of the company, but they are very serious about it this time,” said one of the sources.
GVK Power could use a mix of equity and debt to raise the additional $6 billion to $7 billion, the source said.
Shares in GVK, valued at about $1 billion, rose as much as 4.4% on Thursday to their highest level in two months in the main Mumbai market that was trading slightly higher.
“We have signed a non-disclosure agreement and we are bound by the agreement not to speak on this,” a spokesman for GVK Power and Infrastructure told Reuters.
A spokesman for Standard Chartered in Mumbai declined to comment. A ICICI Bank spokesman was not immediately available for comment. Officials at Hancock Prospecting in Australia could not be reached.
Indian firms are eyeing coal assets overseas to supply power plants in India, looking to benefit from the energy-hungry nation’s aim to halve its nearly 14% peak-hour power deficit within two years.
India holds 10% of the world’s coal reserves, but a shortfall in local supplies has grown rapidly with the increase in coal-fired power plants. The country is estimated to have imported 137 million tonnes in the fiscal year that ended in March.
NTPC Ltd , the country’s top power utility, is reviewing several proposals to buy coal mines in Australia, Indonesia, South Africa and Mozambique, its chairman Arup Roy Choudhury told reporters on Wednesday.
Demand for coal in India in the fiscal year 2021/22 is projected at 1,353 million tonnes against projected output of 1,084 million tonnes, leaving a shortfall of 269 million tonnes.
GVK and Hancock last week signed an agreement to negotiate exclusively until mid-May for the purchase of the mines, according to a report in The Australian newspaper on Thursday.
Energy firms in India have been raising funds for potential overseas acquisitions and expanding facilities.
3i India Infrastructure Fund, managed by UK private equity firm 3i Group, invested about $180 million in the energy unit of GVK in November last year to fund the expansion of output capacity.
Announced M&A in Asia ex-Japan rose 9.7% in the first three months of 2011 to $129.1 billion, according to Thomson Reuters data.
That makes it the busiest start to a year since the first quarter of 2008 when deals worth $133.4 billion were announced.
China accounted for about a fifth of the total M&A volume, followed by Australia and India. The three countries cornered 45 percent of the deals in the first quarter.