Indian firms may eye BHP assets

“The assets are worth looking at," said Partha S. Bhattacharyya, chairman of Coal India Ltd (CIL). The quality of South African coal is good, “but the most important thing to understand is why BHP Billiton is selling".

BHP Billiton Energy Coal South Africa Ltd (Becsa)—a wholly owned subsidiary—announced in Johannesburg earlier this week that the proposed sale of prospecting rights through a public tender process would enable others to develop and convert them into mining rights “in a more timely way".

Becsa has engaged RFA Consulting, which offers investment banking services to the mining and natural resources sector, to advise it on the proposed sale, and has invited expressions of interest from miners, and coal exploration and development firms from across the world.

The time frame for the sale is to be decided by the consultant, said a BHP Billiton spokesperson from Australia.

Becsa currently produces around 35 million tonnes of thermal coal, or the variant used by thermal power plants, from four collieries in the Mpumalanga province of South Africa. These, though, are not being sold. Becsa sells coal within South Africa and exports to several countries, including India.

The divestment will allow Becsa to focus on its existing operations in South Africa, while providing others “an opportunity to develop the prospecting rights, maximizing the benefit to the South African economy", Xolani Mkhwanazi, chairman of BHP Billiton South Africa, said in a statement earlier this week.

“It is probably the right time for BHP Billiton to sell because globally coal prices are soaring and that in turn should lead to better valuations," said Puneet Goel, director at audit and consulting firm KPMG. Indian firms could have a small advantage over rivals from other countries because of their “proven ability" to deal with complex regulatory structures in countries such as South Africa, he added.

It isn’t immediately known whether Indian power companies could bid for the prospecting rights, but they are the ones who are most aggressively scouting for coal resources abroad, according to Kuljit Singh, a partner in the infrastructure practice of consulting firm Ernst and Young.

To be sure, some Indian power companies, such as Adani Power Ltd, have developed expertise in mining as well, and have separate mining arms within their groups.

However, state-owned miners such as CIL aren’t yet aggressively pursuing assets abroad because they don’t have “set guidelines to follow", according to the chairman of a large public sector firm, who did not want to be named.

“The Union government has empowered boards of public sector companies to a great extent, but in the absence of clear guidelines on high-stake deals, they still don’t feel comfortable aggressively bidding for assets abroad," he said. “What if the assets didn’t match expectations?"

The government had formed a committee to formulate omnibus guidelines for the acquisition of foreign assets by public sector firms. “The guidelines are almost ready," he said. “It is expected that the cabinet would approve it and the government would release it very soon."

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