GVK in talks with Kideco for stake sale

GVK in talks with Kideco for stake sale

New Delhi: The GVK group, which recently closed a deal to acquire coal mines and associated infrastructure from Georgina Hope Rinehart’s Hancock Group for $1.26 billion (Rs 6,035 crore today) and is now in the process of raising funds for this, is in talks with PT Kideco Jaya Agung for divesting part of its stake in the coal mines.

Last week, the group announced its acquisition, from Hancock, of a 79% stake in Tad’s corner and Paul’s corner, and a complete acquisition of Kevin’s corner mines located in the Galilee basin in Queensland.

The group, through its subsidiaries, also acquired the rail and port project connecting the coal mines that involves the construction of a 495km rail line and a 60 million tonnes per annum (mtpa) port at Abbot Point. At full production, the mines will extract 84 mtpa of coal.

Two persons familiar with the development, who did not want to be identified, independently confirmed that GVK was in talks with Kideco.

“Along with acquiring minority stakes, Kideco is asking for an MDO (mine development operatorship)," said one of them.

GVK chairman G.V. Krishna Reddy said: “A lot of people are in touch with us, and we will finalize the names in some time."

GVK will need the financial support and technical expertise of partners to develop the mines, and the rail and port projects, with the overall investment required in the first phase pegged at $10 billion.

“There are three projects—the mines, the port and the railways. We will keep the majority stake and divest minority stakes in them," Reddy added.

The Press Trust of India reported on Tuesday that GVK was looking to raise around $1 billion to fund the deal by selling a part of its stake in its Singapore-based subsidiary, GVK Coal Developers.

A GVK spokesperson and Kideco didn’t respond to emails seeking comment.

GVK’s payout to Hancock Group is to be made in phases. While a payment of $500 million will be made immediately, another $200 million will be paid a year later and the remaining $560 million willbe paid on the financial closure of the project, sometime in 2012.

In a statement issued last week, GVK said: “The financing documents for funding the acquisition are being executed with the banks and the transaction is expected to close and assets transferred in about two weeks."

According to information available on Kideco’s website, it is the third largest coal company in Indonesia in terms of output and is owned by South Korea’s Samtan Co. Ltd (49%), Indonesia’s Indika Group (46%) and PT Muji Inti Utama (5%).

GVK’s acquisition of Hancock’s mines is key to its plans to expand the current power generation capacity of 901 megawatts (MW) to 10,000MW by 2013.

Analysts say large-sized projects with equity participation in the components of the value chain diversify risk and reduce capital outlay.

“The coal mining project must be looked at from (a) holistic end-to-end supply chain perspective. Due to the complexities involved in greenfield coal mine development, it may be a good idea to involve specialists for mining, beneficiation, logistics and even marketing, and share risks and rewards through ownership," said Dipesh Dipu, director (consulting, energy and resources, and mining) at Deloitte Touche Tohmatsu India Pvt. Ltd.