GVK Seeks Funds From Rinehart Venture: Corporate India

Gina Rinehart
Gina Rinehart, chairwoman of Hancock Prospecting. Photographer: Ron D'Raine/Bloomberg

India’s GVK Group will raise $3.5 billion by December selling stakes in a unit and coal assets jointly held by Asia’s richest woman Gina Rinehart.

The builder of highways, airports and power plants expects $1.2 billion for a stake in its Australian mines and a similar amount from its rail and port projects in Queensland state, said G.V. Sanjay Reddy, vice chairman of GVK Power & Infrastructure Ltd., the group’s publicly traded unit. The sale of part of its unit that owns 79 percent of these assets may fetch a further $1 billion, he said.

“We’re in advanced stages of discussion with investors and plan to close the deals well before December,” Reddy said in a telephone interview yesterday. “We’ll bring in minority investors at a significant premium.”

Billionaire G.V. Krishna Reddy, the chairman of GVK, is raising debt and equity to meet a $10 billion expenditure plan to develop three mines, and build a rail road and a port after purchasing some coal assets from Rinehart’s Hancock Prospecting Pty. last year. GVK is among Indian electricity producers securing resources in countries including Australia and Indonesia to counter a domestic shortage of the fuel.

GVK agreed in September to pay $1.26 billion for the 79 percent stake in the Alpha and Alpha West projects of Hancock Prospecting, all of Kevin’s Corner project as well as the 495-kilometer (308-mile) rail line and the port project at Abbot Point. Reddy expects to tie up borrowings of about $7 billion by December to fund the development.

Halting Review

GVK Coal Developers (Singapore) Pte. is the unit that owns the majority stake, while Rinehart owns the remaining 21 percent. She is ranked the 29th richest person in the world, and the richest woman in Asia, with a net worth of $18.6 billion, according to the Bloomberg Billionaires Index.

A delay in environmental approvals by Australia’s federal government may impede GVK’s plans, said Vibhor Singhal, an analyst at MF Global Equities Research in Mumbai. Authorities in Canberra halted a review of the project this week on concern unchecked development of ports will damage the Great Barrier Reef.

Prime Minister Julia Gillard sent a letter to the state government of Queensland, saying the conditional approval granted by the state on May 29 “put at risk community and business confidence,” the Press Trust of India reported yesterday.

No Issues

The United Nations Educational, Scientific and Cultural Organization said in a June 1 report that the 3,000-kilometer marine park, which flanks the coast of Queensland, may be endangered within a year without better protection. It urged blocking new ports, saying the scale of development poses “serious concerns.”

“The intervention might delay the project, but it’s not unusual,” Singhal said. “The government will do its bit to ensure the environment isn’t harmed.”

The Indian group, based in the southern city of Hyderabad, has provided all information about the coal mine project to win an environmental approval. “We don’t foresee any issues,” Reddy said, adding he expects to get the mining lease and all environmental clearances for the projects by September.

Share Slump

Shares of GVK Power & Infrastructure gained as much as 4.4 percent to 13 rupees in Mumbai trading, the highest level since May 10. They traded 1.6 percent higher at 12.65 rupees as of 10:22 a.m. in Mumbai. The authorities granted permits to build the rail line from Galilee Basin, where the mines are located, to Abbot Point, Reddy said yesterday.

Still, the stock is approaching a record low reached on Dec. 16 on concern rising debt at the group will weigh on the shares. GVK has slumped 36 percent from this year’s high, according to data compiled by Bloomberg.

The publicly traded company has the option of raising its ownership of GVK Coal Developers to 49 percent from 10 percent.

“The biggest concern is its stretched balance sheet, leading to interest costs,” MF Global’s Singhal said. “The Australian acquisition is also an overhang on the stock.”

GVK Power’s loss in the quarter ended March 31 widened 44 percent to 208.8 million rupees ($3.8 million) from the previous three months, while interest payments more than tripled to 1.7 billion rupees from a year earlier, according to data compiled by Bloomberg.

GVK Power plans to add 5,000 megawatts of power generation capacity to the current 915 megawatts, according to its website, which doesn’t elaborate on a timeline. The company aims to secure coal from overseas to run its planned 1,860 megawatts of coal-fired generation projects in the northern state of Punjab.

Scouring Overseas

At full capacity, the Australian mines may produce 84 million metric tons of coal annually, GVK said in September. Production is scheduled to start in 2014 at a rate of 30 million tons of power-station coal a year, the company said.

Tata Power Co., Lanco Infratech Ltd., billionaire Anil Ambani’s Reliance Power Ltd. and Adani Enterprises Ltd. have bought coal assets in Australia and Indonesia to secure supplies as the state monopoly Coal India Ltd. grapples with slowing production at its mines in India.

“Having invested in generation capacities, these companies have little choice but to go overseas,” Deven Choksey, managing director at Mumbai-based K.R. Choksey Shares & Securities Pvt., said by telephone from Mumbai. “I don’t see India’s coal output meeting the country’s demand for some years to come.”

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