Government-owned Coal India Ltd (CIL), the world’s largest miner, expects to seal strategic partnership deals with three listed companies abroad within six months, including Peabody Energy of the US.
The deal with Peabody, which involves takeover of one of the US company’s subsidiaries, will give CIL access to four Australian coal mines, along with other overseas assets in the US and Indonesia. The mines produce both thermal coal and metallurgical coal suitable for steel production.
CIL is also expected to hit the capital market in end-July or early August with India’s biggest public issue. The company’s initial public offering of a 10 per cent stake is expected to raise a minimum of Rs 12,000 crore. Tenders for bids from banks to handle this have already been issued and banks would be chosen on a combination of both price and technical competence.
Chairman Partha Bhattacharyya said coal miners typically trade at 12-15 times earnings, a benchmark that would form the basis for the company’s listing.
On CIL’s overseas foray, Bhattacharyya said talks were on with two listed companies in Australia and Indonesia for acquiring equity stakes in assets, and the company was weighing five other proposals for pure offtake agreements at competitive prices. “Some of the companies were unlisted and we have asked them to get listed, as we prefer to do business with listed companies only. The entire process should not take more than five-six months,” he said.
“Our plan is to bring coal on a fast track at lower-than-spot prices, for which we have been looking for partnerships,” said Bhattacharyya. CIL produced 431 million tonnes in 2009-10 and accounts for nearly 80 per cent of output in India.
An investment of about $1.8 billion is expected to be made in these deals. Bhattacharyya said coal in India sells for half the global price and the company had yet to tap the opportunity to sell higher-value coal at higher prices. CIL has cash reserves of over Rs 30,000 crore.
On the IPO, Bhattacharyya said CIL’s valuation should take into account three facts. One, no other coal company has proven reserves to the tune of 63 billion tonnes. Two, its attempts at reducing the workforce (the company hopes to reduce employee strength by 100,000 in the next couple of years). Three, the ongoing programme for more coal washeries to improve the quality of the fuel provided to consumers. CIL is setting up 20 washeries to sell washed coal, that has reduced ash content. Besides, the company has planned to sell at least half of its coal in washed form from just around 10 per cent now.
