New Delhi: Reliance-Anil Dhirubhai Ambani Group (R-Adag) firm Reliance Power Ltd plans to buy a stake in an Australian firm that owns coal mines and has an enterprise value of $3 billion (around Rs13,000 crore), according to the company’s spokesperson.
He declined to name the firm or the extent of stake Reliance Power plans to acquire in it. There are other firms as well which are in the fray to pick up a stake in the Australian firm.
Enterprise value is the price an acquirer has to pay for a company—in theory. It is expressed as the sum of the market capitalization, debt and preference shares of a company less the cash and cash-equivalents on its balance sheet.
Eye on efficiency: Operations at an open pit coal mine in Queensland, Australia. The R-Adag company has adopted the equity route since it is an easier alternative to directly bidding for coal blocks. (Photo: Bloomberg)
“The coal from the stake will be used primarily for sale in the international markets and will help in hedging. The coal may also be brought back to India,” the spokesperson said.
The company has embarked on this plan—buying stakes in companies that own coal blocks—since it is easier than directly bidding for coal blocks.
Several Indian companies have been looking to acquire overseas coal assets. Coal remains the source of almost 70% of the power generated in India and the fuel is in perennial short supply here. Indian coal also has a high ash content that reduces the efficiency of plants (or the amount of power they can generate from one tonne of coal).
In March 2007, Tata Power Co. acquired a 30% stake in two coal mining units and a trading company, belonging to Indonesia’s PT Bumi Resources. Power trader PTC India Ltd is also creating a $1 billion fund for the acquisition of overseas coal blocks.
Analysts say coal trading is a lucrative business, especially when a firm has its own coal properties and is not exposed to market volatility.
T. Sankaralingam, former chairman and managing director at India’s largest power generation company, NTPC Ltd, said, “The idea here is to secure a fuel source. To acquire a greenfield coal block overseas will require a lot of due diligence along with higher risks associated with the project. In the case of operational coal mines this risk is mitigated.”
Mint had reported on 23 April that R-Adag planned to enter the coal trading business. The group has already secured stakes in the coal blocks in Indonesia, having estimated reserves of 2 billion tonnes, and is also negotiating for more coal properties in Indonesia, Mozambique and South Africa.
The size of the market for imported coal that goes into power generation in India is around 20 million tonnes per annum and is expected to double by 2012 as more thermal power projects come up.
Reliance will be investing around $1 billion, or Rs4,330 crore, to acquire stakes in Indonesian coal mines, as reported by Mint on 27 November. It also plans to invest around $1 billion for the purchase of capesize vessels, large cargo ships, for transporting coal to India.