Sunday, Apr 01, 2007
Tata Power buys 30% in 2 Indonesian coal cos http://www.thehindubusinessline.com/2007/04/01/stories/2007040103160100.htm
Our Bureau
$1.1-b deal addresses fuel requirements of new projects
Mumbai March 31 Tata Power Company said it has signed a $1.1-billion (Rs 4,950 crore) deal to buy 30 per cent stakes in two Indonesian coal companies, and in a related coal trading company, all promoted by PT Bumi Resources Tbk (Bumi), Indonesia.
PL Kaltim Prima Coal and PT Arutmin Indonesia are two of Indonesia's largest coal mines which together produced 53.5 million tonnes in 2006, of which 95 per cent was exported.
Offtake pact
Tata Power has also signed an offtake agreement with Kaltim Prima, which entitles it to purchase 10 million tonnes of coal per annum.
The Indian power company is sewing up long-term contracts for coal for its ambitious five-year, 7000 MW expansion plan.
"The acquisition specifically addresses fuel requirements of the Mundra Ultra Mega Power Project, the Trombay project and the coastal power project in Maharashtra. It is complementary and supports the assumptions made in the bid for Mundra UMPP," said Mr Prasad Menon, Managing Director, Tata Power.
"This move not only secures our fuel requirements in the light of the aggressive growth plans charted out by the company, but also opens up opportunities for Tata Power to own and operate a range of world-class, competitive and profitable electricity and energy businesses in India and overseas," he said.
Top Three
Together the companies are among the top three coal exporting thermal coal mines in the world, said a statement from Tata Power. In addition, company officials said, the companies have excellent transport infrastructure for shipping coal for exports. Kaltim Prima is reported to have reserves of nearly 3.6 billion tonnes of coal.
The transaction cost of $1.1 billion is prior to working capital and other adjustments. The seller PT Bumi Resources could get as much as $200 million more from these adjustments, getting $1.3 billion from the deal.
Special purpose vehicle
Tata Power will make this acquisition through an offshore special purpose vehicle, said a statement from the company. Funding will be done through a combination of debt in the SPV, internal accruals and borrowings from Tata Power.
The funding details cannot currently be specifically described since the company is finalising a funding package that would include other projects, including the Mundra UMPP, said Mr S. Ramakrishnan, Executive Director, Tata Power.
The company will require 21 mt of imported coal for all these planned projects. The Indonesian deal will take care of 50 per cent of Tata Power's requirements, which would be capped there. "From a risk point of view, we don't want to get more than 50 per cent of our requirements from one country," said Mr Ramakrishnan.
The rest is to be secured through a combination of purchasing equity stakes in coal mines and entering offtake contracts. "We are looking at opportunities in Australia and South Africa too," he said. The transaction is expected to be completed by June 30.
The financial impact of the acquisition on Tata Power will be positive over a five-year time frame; however it would be under marginal pressure for one or two years, said Mr Ramakrishnan. But, on a consolidated basis, the deal will be positive from day one, the acquiree companies being profit-making ones, he said.
Currently, Bumi has 100 per cent stake in PT Arutmin and 95 per cent stake in Kaltim Prima, he said. Regulations require that Indonesian promoters own at least 51 per cent stake in these companies.
Bumi had been looking for a buyer for one-third interest in these mines ever since its attempts to sell the stakes to an investment bank proved unsuccessful.
But Tata Power believed that it was a good deal, whose valuation was done on the basis of discounted cash flows and entitlement to earnings.
Tata Power also produces hydro-electric power but is betting on coal-based thermal power as its mainstay for expansion. It runs current capacities of close to 2,400 MW.
The company had reported revenues of Rs 4,562 crore and net profit of Rs 610 crore for the year ended March 31, 2006. Its revenues for the quarter ended December 31, 2006 had been Rs 1,200 crore and net profit, Rs 280 crore. The two coal mines together produced 53.5 million tonnes in 2006
The companies have good transport infrastructure for shipping coal for exports.
Tata Power will make this acquisition through an offshore SPV
Funding will be through a combination of debt in SPV, internal accruals and borrowings.
The company will require 21 mt of imported coal for its planned projects.
The Indonesian deal will take care of 50 per cent of Tata Power's requirements
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