Coal India Should Shun Foreign Acquisitions, Investor Says

Coal India Ltd., the world’s largest producer of the fuel, should refrain from overseas acquisitions because the local market is more lucrative, the second-biggest investor in the state-owned miner said.

“There are abundant reserves in India and returns on investment are far higher here,” Oscar Veldhuijzen, a partner at The Children’s Investment Fund Management UK LLP in London, said by telephone yesterday.

The miner is considering three acquisition proposals, one each in Australia, the U.S. and Indonesia, as demand for the fuel increases in Asia’s second-fastest growing major economy. The rate of return on buying assets abroad will be lower because the cost of purchases could be high, Coal India Chairman N.C. Jha said on July 25.

“A company of Coal India’s size should be looking to expand in different geographies,” said Deven Choksey, managing director at Mumbai-based K.R. Choksey Shares & Securities Pvt. “Fundamentally, I don’t think they are making a mistake. They must do everything that helps them fulfill their supply commitments.”

Coal India, which accounts for more than 80 percent of India’s output of the fuel, needs the government’s permission to acquire stakes in unlisted units of listed foreign companies. It has also asked for relaxation of a requirement that investments yield an annual return of at least 12 percent.

Environmental curbs and delays in land acquisitions have hampered Coal India’s plan to increase production as utilities in India build power plants to help meet a government target of providing electricity for all households by 2012. Coal is used to generate more than half the country’s electricity.

Cheaper, Better

“Indonesia is looking to impose a ban on exports of low-calorific value thermal coal by 2014,” Veldhuijzen said. “It is much more secure, cheaper and much better for Coal India if the Indian government finally gets its act together and accelerates environment and land clearances.”

The Children’s Investment Fund had a 1.04 percent stake in Coal India as of June 30, according to data compiled by Bloomberg. The government held 90 percent, after selling 10 percent in an initial public offering in October.

“Coal India is probably the best investment in Asia,” Veldhuijzen said. “It is an attractive investment even at the current price.” He did not comment on the fund’s other potential investments in India.

Coal India shares have risen 6.5 percent since they were listed on Nov. 4, compared with a 22 percent fall in the benchmark Sensitive Index during the period. The stock, which was added to the index on Aug. 8, fell 2.4 percent to 364.70 rupees at 9:22 a.m. in Mumbai trading.

India’s estimated coal resource is 267.2 billion tons, of which 105.8 billion tons are proved, according to the Coal Ministry’s web site.

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