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Maoist Death Threat Stymies $2 Billion Project: Corporate India

Jindal Steel & Power Ltd. (JSP), which is building two electricity plants in eastern India at a cost of $2 billion, halted all work following death threats from Maoist guerillas against developing an adjoining coal mine.

“Our people are mortally scared to go into the area,” Managing Director Ravi Uppal said in an interview in New Delhi, where the company controlled by billionaire lawmaker Naveen Jindal is based. “We’ve asked the government for security. We’ll not move ahead unless our safety is guaranteed.”

Halting the projects in the eastern state of Jharkhand jeopardizes Jindal’s plan to increase generation capacity more than tenfold in seven years and underscores the risk the Maoists pose to industry. The rebels are adding to challenges Prime Minister Manmohan Singh faces as he tackles the slowest pace of economic growth in a decade, the rupee’s plunge to a record and an unprecedented current-account deficit.

The rebels, who have waged a war against the government from dense forests, draw support from villagers who believe they have a natural right to the mineral resources lying beneath their habitat. Singh has called Maoists the greatest threat to India. In May, about 300 armed rebels killed 27 people including senior leaders of Singh’s ruling Congress.

‘Step by Step’

“Risks to coal availability and the depressing business atmosphere are making the company cautious,” said Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai, who halted covering the stock last month. “The economic slowdown looks very real now and it’s wise to move step by step.”

Jindal shares fell as much as 2.6 percent to 213.30 rupees and traded at 216 rupees as of 9:20 a.m. in Mumbai. The shares have declined 52 percent this year, compared with a 7.3 percent retreat in the key S&P BSE Sensex. (SENSEX)

The Maoists’ campaign is threatening to derail Singh’s push to boost power generation in a nation where outages lower factory output and deprive more than half its population of education and healthcare. Average peak power supply lagged demand by 6 percent in the four months to July 31, according to data from the Central Electricity Authority, a unit of the federal power ministry.

Last month, the Maoists killed five policemen in Jharkhand, including the head of the police in the district where Jindal is building one of the coal-fired plants. The two plants were planned to have a combined capacity of 2,640 megawatts.

Mine Allocations

The Maoist death threats come amid probes by India’s top investigating body into allocations of coal mines to Jindal and its rivals. Jindal is among the biggest beneficiaries of a policy that gave away coal mines without auctions, a plan that may have cost the government 1.86 trillion rupees ($30 billion), according to a report by the state auditor last year.

“These controversies have distracted us, they have set us back,” Uppal said. “We’ve been dragged into this while we were trying to put all our energy into the projects.”

The Central Bureau of Investigations raided Jindal’s offices across the nation and Chairman Naveen Jindal’s residence in New Delhi on June 11. It will question Naveen Jindal after the monsoon session of parliament ends on Aug. 30, The Economic Times said Aug. 19.

“This is an ongoing CBI investigation into coal block allocations,” Manu Kapoor, the head of external affairs at Jindal, said in a June 11 e-mailed statement. “JSPL is committed to fully cooperate with the CBI.”

Cut Spending

Slowing demand for steel, raw material shortages and difficulties in executing projects prompted Jindal to scale back its capital spending plans in the two years to March 2015 by 40 percent. The company will spend 120 billion rupees in the period, compared with an earlier plan of 200 billion rupees, Chief Financial Officer K. Rajagopal said July 31.

The company will also slow expansion of its steel plant at Angul in the eastern state of Odisha after struggling to obtain coal and iron-ore mining permits. The mill, India’s first to use thermal coal to make steel, went on stream this month and is awaiting permits for a coal mine for almost a year after completing regulatory formalities.

“We won’t proceed with a project unless we have all clearances in black and white,” Uppal said.

The company is considering buying back shares from the public to shore up the price and a plan may be announced by Sept. 15, he said.

“The share buyback plan is one way to tell the investors that we believe in what we are doing,” Uppal said. “We’re doing everything that’s in our hands -- improving efficiency, cutting costs, expanding markets and innovating.”

Net Debt

Last week, Uppal met some investors and pledged not to allow Jindal’s net debt-equity ratio breach 1.5 at any time, he said. The company had a net debt of 255 billion rupees as of June 30, which may climb to 300 billion rupees by March, according to Rajagopal. Limiting capital spending will help the company keep its debt at a manageable level at a time when earnings are sliding, Nirmal Bang’s Daga said.

Jindal last month reported its lowest quarterly profit in a year for the three months ended June 30 following a drop in steel and power prices and non-cash foreign exchange losses on overseas debt caused by the weakening of the rupee. The currency sank 2.3 percent to 63.1300 per dollar in Mumbai yesterday after touching an unprecedented 63.2300 intraday, according to prices compiled by Bloomberg from local banks.

The challenges at home have prompted Jindal to increase its earnings from overseas, expand its businesses and boost exports. The company is seeking coal and iron ore mines in Africa and Australia and is considering setting up a number of 300 megawatt-power plants in Africa. The company expects revenue from exports and overseas businesses to rise to 35 percent of the total in two years from 25 percent.

“We have to expand where we see value,” Uppal said. “There’re enormous challenges of doing business in India today. The government must act as if there is no tomorrow.”

To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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