BackMore bankers to sign up for Coal India’s `35,000 cr shopping plan
Coal India is likely to get as many as five applications from investment bankers
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Mu mbai: As many as five more investment bankers may join Coal India Ltd’s panel of 13 as the state-run company gets set for what could be a $6.3 billion shopping spree, as it makes another attempt to acquire assets after earlier such bids met with little success.
The company has a war chest of ₹ 35,000 crore that it wants to use to buy mines all over the globe in the quest for coal that’s badly needed to run power projects that are critical to India’s bid to revive economic growth.
The tender inviting new applicants to advise the miner on the purchase of overseas assets closes Friday, according to two company officials who said another five may seek to be empanelled.
“The company already had a panel of 13 merchant bankers since 2009-10," said one official, who did not want to be named. “Since then, many more merchant bankers and investment bankers have come into the fray—they wished to join."
The two officials said four-five bankers have evinced interest, and are likely to formally apply on the last date.
Coal India, the world’s largest mining company that produces more than 80% of the country’s coal output of 557.5 million tonnes, is looking for overseas assets to shore up availability of the resource amid a scarcity in the local market and severe shortages forecast for the future.
The company attempted to buy mines three years ago, even conducting due diligence but these attempts fizzled out. These included the assets of Peabody Energy Corp. in the US and Massey Energy, which was acquired by Alpha Natural Resources Inc. in 2011, also of the US, besides Indonesia’s Sinar Mas.
There’s a renewed push to seek overseas acquisitions and more assets are up for sale in Australia, Indonesia and Africa owing to depressed metal prices and the high cost of production, and these could be attractive propositions for Coal India, analysts said.
“They are going in for very aggressive bidding. This time maybe they will (buy)," coal secretary S.K. Srivastava said. “There are no targets. It depends on how the situation develops."
Ahead of the merchant bankers’ list being finalized, 15 proposals to buy overseas assets have been brought to the table, an executive had said earlier.
These proposals are from Australia, Indonesia, Mozambique, South Africa and Colombia, the executive had said.
Coal India has two overseas mines, both in Mozambique’s Tete province, that were acquired in 2009 as part of a government-to-government deal. Exploration is on at the sites and production is expected to commence in a few years.
Coal India may not be able to benefit from such government-backed deals as most mines have gone private, a consultant said.
“In the last few years more assets have come under development and private ownership, a process driven by higher commodity prices and governments seeking more tax revenues," said Kameswara Rao, executive director, energy, utilities and mining at PricewaterhouseCoopers.
“Many of these mines are at feasibility stage, and the juniors (small mining companies) requiring capital will sell a strategic stake or sign up off-take agreements for coal. There is a wide range of them that are actively courting Coal India and other energy and mining majors," Rao added.
Also, Coal India is now more experienced at competitive bidding, Rao said.
The two Coal India officials said the government’s requirement that only listed companies could be considered was revised a few years ago, giving it more flexibility. Besides this, a government benchmark of ensuring a minimum of 12% return on equity may be softened if Coal India proves its acquisition overseas is strategic and aimed at long-term gain.
Still, valuations remain high even though tradable commodity prices are currently seeing a downcycle, Rao said. The other big deterrent may be the high expenditure on infrastructure that many of the mines in far flung areas demand.
“Merchant bankers tom-tom the assets on sale to generate buyer interest," said an executive in a mining company. “At the end, only few deals may culminate even though it may look like many mines are on the block."
Coal India chairman S. Narsing Rao’s reputation as someone who achieves difficult targets may persuade the government to do what it can to speed up any acquisitions. Rao is credited with improving rail logistics leading to improved coal supplies, long considered the company’s biggest challenge, analysts said.
It is possible Coal India may end up with a small purchase owing to its conservative approach, and be content with just one asset.
Several companies getting caught in legal or environmental problems with their coal assets overseas could make Coal India to treat its own asset purchase via competitive bidding, as a test case for future ventures.
“They will go though the whole cycle and try this out," Rao said.
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