GMR, the Bangalore-based infrastructure and power major, has put in an aggressive bid to emerge as a frontrunner for the controlling stake in CIC Energy, the Canadian resources company. The bid, if successful, could value the acquisition at a little over $500 million (Rs 2,215 crore), which many believe could well see another bidding war among Indian and Chinese mining and power companies.
According to two people aware of the developments, GMR is pitted against Sajjan Jindal’s JSW Group who have also put in a non-binding bid. Both companies are at various stages of completing a due diligence exercise within their stipulated exclusivity period. At least one more bid is expected from a Chinese party within a fortnight.
The current non-binding bids also need to get converted into firm, ‘binding’ offers.
A Toronto Exchange-listed coal exploration company, CIC Energy has an ‘A-grade’ mining-cum-power complex called Mmamabula Energy Complex in Botswana, southern Africa. The Mmamubala coal field is estimated to have 2.6 billion tonnes of high-thermal coal, mostly above 6,000 kcal/kg of calorific value. Within the next three to four years, it is expected that around 24 million tonnes of coal can be extracted every year. There is also a proposed 1,200-Mw coal-fired power plant and a coal to hydrocarbons project.
CIC has over the past month reported to the Canadian exchanges that it had got two concrete but non-binding bids from Indian companies with interests in mining and power. The last bid announcement came last Friday.
The CIC stock has reacted positively to all the developments, doubling in one month to a 52-week high of $7.25/share and is currently trading at $5.8/share levels. Last Friday saw a four per cent spurt in the counter, before ending the day at $6.42/share.
On the face of it, GMR’s bid is expected in the $8.50-8.85/share range. It may seem higher than JSW’s at $7.75/share but it involves a partial upfront payment, as well as staggered payouts within a specific timeline. Negotiations are currently over the payment structuring.
When asked, GMR’s spokesperson told Business Standard the company would not comment on speculative news. The group’s finance chief, Subba Rao, could not be reached.
African attraction
The promoters of CIC Energy, led by its chairman and CEO, serial entrepreneur Warren Newfield, hold close to 20 per cent in the company. The promoters and institutions together have close to 85 per cent, with the remaining 15 per cent staying with public shareholders. The bidders are expected to take full control of the company, with full management rights after triggering an open offer at 20 per cent. Under Canadian law, the open offer can be a partial one for the controlling 50 per cent or an absolute buyout.
According to sources, the interests for the assets intensified only recently, after the governments of Bostwana and neighbouring Namibia agreed to partner and jointly develop a 1,500-km railway construction across the Kalahari Desert that can carry 60 million tones of coal annually. In return, the two governments are expected to sign committed usage agreements (use or pay contracts) with mining and power companies. Without this firm commitment, a deal was tough. “Evacuation of coal from Bostwana has been a handicap as it’s land locked. Now, via Kalahari and Namibia, the coal can be sent to port locations in Namibia, which is on the west coat,” said an industry source who did not wish to come on record.
This deal comes at a time when GMR is looking at exiting from its billion dollar-plus investment in international power utility company, Intergen. But just like JSW, GMR too has been in constant search for coal assets worldwide, for its growing power portfolio back home, which it expects to scale up from the current 808 Mw to over 6,500 Mw over the next five years. GMR’s power arm, GMR Energy, also raised a little over Rs 1,600 crore earlier in the year from a clutch of global and Indian private equity companies, led by Temasek and IDFC.
