Coal India Ltd., which failed to use any of its $12 billion cash to buy mines overseas in the past five years, is renewing efforts as demand soars from power producers, said two people familiar with the plan.
Seven stake-sale proposals from Indonesia and Australia are being considered and initial offers will be sought this week, said the people, who asked not to be identified, citing confidentiality terms. The state-owned company was unable to overcome bureaucratic hurdles to clinch as many as four deals abroad two years ago. It now plans to open a unit in South Africa next month to study asset prospects, the people said. Spokesman Devendra Prasad declined to comment.
Coal India, which fires more than half of India’s power generation capacity, faces government pressure to ensure uninterrupted supplies to utilities and cut blackouts that impede economic growth. The Kolkata-based company’s bids to expand at home have been stymied by difficulties in getting land and environment approvals and frequent labor unrest.
“Coal India has been handcuffed in India by slow approvals for new projects, logistical difficulties and unpredictable monsoons,” said Abhisar Jain, an analyst with Centrum Broking Ltd. in Mumbai, who has a neutral rating on the stock. “It’s being forced to look overseas because of the government decree to guarantee supply to power plants.”
Coal India shares have risen 4.7 percent in the past year in Mumbai, short of the 6.6 percent increase in the benchmark Sensitive Index. The stock fell as much as 1.3 percent to 338.55 rupees and traded at 338.95 rupees as of 10:49 a.m. local time.
India’s coal demand is expected to rise 41 percent by 2017 to 981 million tons, while supplies from local mines may gain 28 percent to 715 million tons, the Planning Commission said last year. The nation, which generates 57 percent of its electricity from coal, plans to add 118 gigawatts of capacity in the five years ending March 2017, said I.A. Khan, energy adviser at the commission. Power companies added about 55,000 megawatts in the five years ended March 31, the most in a five-year period. The country has a capacity of 211 gigawatts.
Coal India’s efforts to purchase stakes in assets of St. Louis-based Peabody Energy Corp. and Indonesia’s PT Dian Swastatika Sentosa were foiled as the government dragged its feet. A 30 percent stake offered in Swastatika Sentosa unit Golden Energy Mines, which Coal India pursued for more than a year, was eventually bought by Bangalore-based GMR Infrastructure Ltd.
Coal India, the world’s biggest producer of the fuel, has been grappling with stalled production growth for the past three years. The company plans to invest 75 billion rupees ($1.4 billion) in a 203-mile (327-kilometer) railway network that will help free up almost 300 million tons of annual output in five years, Chairman S. Narsing Rao said earlier this month.
The company, whose annual output is expected to grow at a compounded annual rate of 3.5 percent in the four years ending March 31, is striving to double that rate, Coal Minister Sriprakash Jaiswal said last month. A global presence for Coal India, whose only overseas foray is a state-led prospecting initiative in Mozambique, will help the government attract investors when it plans to sell more of its stake in the company, said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai.
“Widening the base reduces a company’s geographical dependence, which in today’s world is liked by investors,” Choksey said in a telephone interview.
Prime Minister Manmohan Singh’s government, struggling with a widening budget deficit, plans to raise 350 billion rupees in the year starting April 1 selling shares in state-owned companies, including Coal India, Indian Oil Corp., Engineers India Ltd., Power Grid Corp. of India Ltd. and Bharat Heavy Electricals Ltd., two finance ministry officials with knowledge of the plan said last week. The Coal India sale will be the biggest and will seek to raise 200 billion rupees, the officials said.
The government sold 10 percent in the coal miner in a record initial public offering in 2010 for 152 billion rupees. India raised more than 115 billion rupees selling shares in the nation’s biggest power producer NTPC Ltd. on Feb. 7.
Coal India has started exploration at two mining areas in Mozambique’s Tete province and has called bids for additional drilling in the area, according to a document on the company’s website. The company plans to award the contract by March, the two people said.
Talks are on with the South African government for a similar venture in Limpopo province, they said. The discussions will take place at a bilateral level between the two nations, they said.
“This is a good time for Coal India to buy as it can get bargains because of lower commodity prices,” Choksey said. “It can also expect the government’s support as the need for coal imports is rising.”