Coal India Ltd., the nation's monopoly producer of the fuel, may spend $1.7 billion to buy stakes in five mines in Australia, Indonesia and the U.S. to help bridge a shortfall in Asia's third-biggest energy consumer.
"We have the equivalent of $7.4 billion in cash which we can use for acquisitions," Partha Bhattacharyya, chairman of the Kolkata-based company, said in a telephone interview today. "We have all this money and no debt and we want to use it for acquisitions to meet shortages," Bhattacharyya said.
State-owned Coal India, in which the government plans to sell shares, is seeking access to mines overseas following delays in increasing supplies to power producers setting up plants in the world's second-fastest growing major economy. Environmental approval is pending for 89 Coal India projects, Coal Minister Sriprakash Jaiswal told parliament in March.
"India will continue to depend on imports unless Coal India acquires reserves of at least 50 million tons a year," said Madanagopal Ramu, an energy analyst at Centrum Broking Pvt.
The five mines that Coal India is studying include two owned by Peabody Energy Corp. in the U.S. and Australia, Bhattacharyya said. Peabody, the largest U.S. coal producer, is in preliminary talks with Coal India over "long-term" supply agreements and potential cooperative ventures, the St. Louis- based company said April 12.
Due Diligence
Coal India appointed Bank of America Merrill Lynch, Royal Bank of Scotland Group Plc and Royal Bank of Canada to do due diligence on the mines, Bhattacharyya said. The assessment may be completed in four months and purchases may take place in six months, he said.
"We are confident we will be able to strike a deal for at least two of the five proposals," he said. "We would be happiest if we get all five."
India imports about 10 percent of its coal requirement and the five mines together can meet about 50 percent of annual imports of the fuel, Bhattacharyya said.
Thermal coal imports surged last year to about 60 million tons from about 30 million tons in 2008, Macquarie Group said in March. India plans to increase its coal imports to 81 million tons in the year ending March 2012, Jaiswal said in November.
The Indian government has invited bids from merchant bankers by May 3 to be appointed as advisers for the sale of a 10 percent stake in Coal India, the department of disinvestment said in newspaper advertisements last week.
Stake Sale
The government expects to raise more than 120 billion rupees ($2.7 billion) selling shares of Coal India in an initial public offering, Bhattacharyya said. The sale may take place in the last week of July or the first week of August, he said.
Reliance Power Ltd.'s 115.63 billion rupee offering in January 2008 was India's biggest share sale, according to data compiled by Bloomberg.
Coal India plans to spend 38 billion rupees on its mines at home to increase output in the year that started April 1, Bhattacharyya said. That's excluding the spending on overseas purchases, for which it has set aside 60 billion rupees.
The company is targeting output of 460.5 million tons of coal during the year, compared with 431.34 million tons produced in the year ended March 31, Bhattacharyya said.
Coal India, which was created in 1975 from nationalized companies, mostly uses the less-complicated, open-cast mining method that needs large tracts of land.
Environmental approvals to prospect for more reserves is a process that can take as long as seven years in India, delaying production from fields at home and increasing imports by 10 to 15 percent a year, Bhattacharyya said July 1. This is forcing companies to seek coal reserves overseas, he said then.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.
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