Coal India Ltd. (COAL), the world’s biggest producer of the fuel, plans to use its $9.2 billion of cash to increase output and pay more dividend as investors clamor for higher returns.
The state-run company will spend 370 billion rupees ($7.5 billion) in the five years starting April 1, 2012, to raise annual production by 250 million metric tons, or more than half of its capacity, Chairman Nirmal Chandra Jha said in an interview. Dividend this year may be higher than the 3.90 rupees a share it paid in the year ended March 31, he said.
“While keeping the money in the bank helps our biggest shareholder, the government, minority shareholders are deprived,” Jha, 60, said in New Delhi yesterday. “We also need to expand to better use the cash we generate.”
Kolkata-based Coal India, owned 90 percent by the government, is seeking assets overseas as environmental hurdles and red tape prevent it from starting new mines and expanding existing ones. The Children’s Investment Fund Management UK LLP, Coal India’s second-largest shareholder, wants it to shun acquisitions and spend its record 450 billion rupees cash to boost returns by developing reserves at home.
Coal India fell 2.4 percent to 375.35 rupees yesterday in Mumbai. The stock has gained 53 percent since its Nov. 4 debut, compared with a 20 percent decline in the benchmark Sensitive Index in the same period.
Coal India is planning to develop two mines in Mozambique and is considering a venture to develop a mine in Indonesia, Jha said, without giving details.
“When domestic projects are not proceeding as fast as we would like, we have to go for imports or stakes in overseas mines,” Jha said.
The company should focus on increasing domestic production, instead of seeking overseas acquisitions, Coal Minister Sriprakash Jaiswal said. Demand for coal in India is increasing at more than the world average, he said, without elaborating.
“I’d promote domestic expansion,” he had said in an interview on Sept. 21. “I’m not fond of Coal India making overseas acquisitions or importing coal.”
India’s coal production has trailed demand from utilities, steel mills and cement makers in Asia’s second-fastest growing major economy. Output in the year ending March 31 is expected to reach 559 million tons, falling short of demand by 137 million tons, Jaiswal said on Sept. 5.
A group of ministers on Sept. 20 agreed to allow companies to seek approval to mine coal in some dense forest areas, overturning a 2009 ban imposed by the environment ministry, two government officials said Sept. 20. The coal ministry wants more areas opened for mining coal, used to fire more than half of India’s power-generation capacity.
The ban on mining in forest areas has held up production of 660 million metric tons of coal a year from 203 blocks, which is enough to generate 130,000 megawatts of power, according to government estimates. About 400 million tons of Coal India’s reserves lie beneath dense jungles.
India has abundant reserves and returns on investment in the country are higher than elsewhere, Oscar Veldhuijzen, a partner at The Children’s Investment Fund, said in an Aug. 25 interview.
Coal India produced 431.3 million tons in the year ended March 31, accounting for 81 percent of the nation’s output, according to its annual report. The company may also invest about 270 billion rupees to upgrade equipment to help reduce the time taken to load the fuel on to railways wagons by 20 percent, Jha said.
“Railways have limited tracks and wagons, so it’s critical to bring down the turnaround time,” Jha said. “The mechanized system can help us reduce loading time.”
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