GVK Said to be in Talks to Borrow Up to $850 Million to Buy Hancock Mines

GVK Power & Infrastructure Ltd. (GVKP), a builder of airports and utilities controlled by Indian billionaire GV Krishna Reddy, is in talks to borrow as much as $850 million to fund the purchase of two Hancock Prospecting Pty coal mines, said two people with knowledge of the negotiations.

GVK will use the money to pay Hancock $500 million for equity in the mines, and another $350 million as compensation for costs incurred by the Australian company for running them, the people said, asking not to be identified because the discussions are private.

GVK is seeking overseas coal supplies to help fuel power plants at home after its shares fell 45 percent in Mumbai over the past year. The Indian utilities company will pay about $1.5 billion in total for Hancock’s Alpha Coal and Kevin’s Corner mines, with the balance to be paid in the next few years, two people familiar with the matter said April 6. GVK is in talks with investors including 3i Group Plc and Actis LLP about helping to finance the acquisition, one of the people said.

“The company is showing over-enthusiasm, but it is backed by India’s growing confidence globally,” said Jagannadham Thunuguntla, chief strategist at SMC Wealth Management Ltd. “If India and its power projects grow as anticipated, this debt will not be a problem unless there is a slowdown in the project.”

While the new loan would increase a debt to equity ratio that stood at 131 percent in March 2010, the investment will likely pay off for GVK as coal is expected to account for the bulk of India’s plan to add 100,000 megawatts of production capacity by 2017, said Thunuguntla.

Borrowing Cost

Banks may charge GVK about 425 basis points above the London interbank offered rate, or Libor, according to one of the people. A basis point is 0.01 percentage point. Manish Kalghatgi, a spokesman for GVK based in Bangalore, declined to comment.

3i India Infrastructure Fund has invested 8 billion rupees ($177 million) in GVK Energy Ltd., a wholly owned subsidiary of GVK Power. Actis Infrastructure India PCC Ltd. and an affiliate of the Government of Singapore Investment Corp. have each invested 3.49 billion rupees.

Hancock is owned by Gina Rinehart, the first woman to top Forbes Asia’s list of Australia’s richest people. The 56-year old widow is the daughter of Lang Hancock, the man who discovered the mines that made Australia the world’s biggest iron ore exporter.

To contact the reporters on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net; Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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