[lbo-talk] Indian corp Tata Power buys 30% in 2 Indonesian coal cos for $1.1 bn

Sun Apr 1 03:25:42 PDT 2007

The Hindu Business Line
http://www.thehindubusinessline.com/

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