Billionaires Lose as India Mine Permits Ruled Illegal

Billionaires Anil Ambani, Kumar Mangalam Birla and Savitri Jindal lost a combined $1 billion of their net worth after India’s highest court ruled that the allocation of coal mines since 1993 was illegal.

The verdict yesterday spurred concern mining permits may be canceled or penalties imposed, driving down the shares of their companies in Mumbai. Jindal Steel & Power Ltd. plunged 6.5 percent at the close in Mumbai, its biggest two-day loss since October 2008. Ambani-controlled Reliance Power Ltd. fell 6.9 percent. Birla’s Hindalco Industries Ltd. gained 3.4 percent, reversing an early decline of as much as 4.3 percent.

The federal government’s policy of allocating 218 mines for captive use to companies without auctioning them wasn’t transparent, a three-judge bench headed by Supreme Court Chief Justice R.M. Lodha said yesterday, following a report by India’s main investigating agency. The court on Sept. 1 will hear arguments regarding termination of the mining licenses.

“Uncertainty has been created and this uncertainty will remain until the court gives a final ruling, affecting shares,” said Vaibhav Sanghavi, managing director of Ambit Investment Advisors Pvt. in Mumbai. “If the court decides to take away all the mining licenses, it could affect the economy as well in a significant way.”

Of the mines declared illegal, 33 are in operation and expected to produce about 53 million metric tons in the year ending March 31, CLSA Asia-Pacific Markets analysts Abhijeet Naik and Nitij Mangal wrote in a note today. That’s more than 9 percent of India’s annual production.

Fuel Shortages

Annulment of mining rights may lead to fuel scarcity at several factories, including power plants and steel mills, undermining Prime Minister Narendra Modi’s aim to curb blackouts in Asia’s third-biggest economy. Inadequate coal output has prompted companies to seek supplies overseas, as state producer Coal India Ltd. battles slow land acquisition and government approvals.

Savitri Jindal had a net worth of $7.3 billion as of yesterday after losing $531.50 million in value, the most in the world, according to the Bloomberg Billionaire Index. Ambani’s worth fell by $296.2 million to $8.9 billion and Birla’s by $255 million to $10 billion.

The verdict’s “negative impact” could be felt most by Jindal Steel and Hindalco, Morgan Stanley said in a note yesterday.

Permits Canceled

The Coal Ministry allocated the blocks between 1993 and 2011, of which it canceled 80 permits for failure to meet production milestones. Criticism about the discretionary process of allocation forced the government in 2010 to amend the mining laws and adopt a policy of auction. The nation has yet to auction its first coal mine.

Factory operators were allocated coal blocks for their own use as supply from monopoly miner Coal India Ltd. fell short of demand because of slow land acquisition and government approvals. Even with the allocations, some mines weren’t developed, prompting companies to seek supplies abroad.

The policy of giving away the coal mines to non-state companies alone caused a loss of 1.86 trillion rupees ($31 billion) to the state exchequer, the federal auditor said in August 2012. The Comptroller and Auditor General’s report on the estimated losses added to a series of corruption charges on the previous government of Manmohan Singh and prompted the Supreme Court to order an investigation by the federal investigative agency.

“If the situation prolongs, it could severely strain coal supplies to customers,” said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai. “I’d expect the government to act on this matter urgently and allow companies to retain coal mines on the basis of merit.”

Lower Earnings

All of Jindal Steel’s coal blocks are now “under risk,” UBS AG said in investor note yesterday. Replacing output from its mines with imports could lower the company’s earnings per share for the year ended March 2015 by an estimated 36 percent and by 30 percent in the next year, UBS wrote.

The ruling may bring clarity in licensing mines and will benefit the industry in the long term, Coal Minister Piyush Goyal told reporters in New Delhi yesterday.

“I hope the work to deliver coal to increase generation and reduce imports will be expedited and the court’s judgment will go a long way in helping us achieve our goal of providing 24x7 power,” Goyal said.

The court said that the allocation of coal mines meant to feed some power stations, which the companies won after competitive bidding, were legal. The coal from these mines would be used only by designated power plant and couldn’t be sold commercially. Reliance Power operates one such 3,960 megawatt power plant at Sasan in the central state of Madhya Pradesh.

Evaluating Impact

Jindal Steel is evaluating the impact of the ruling on the company and wouldn’t comment further, it said in an e-mailed statement. Chanakya Chaudhary, Tata Steel’s spokesman, declined to comment on the ruling saying he hadn’t yet seen the court order. Pragnya Ram, spokeswoman at Hindalco, didn’t respond to an e-mail seeking comments.

Jindal Steel is also counting on a final permit for its Utkal B1 coal block that will fuel its steel project in eastern state of Odisha, the first in the country to use gas produced from thermal coal to run a steel mill. Essar Power Ltd, controlled by billionaire brothers Shashi and Ravikant Ruia, and Hindalco have invested about $3.8 billion to build power plants and an aluminum smelter to be fueled by coal from the Mahan mines.

A panel of retired judges may be formed to probe the case, the court said in its 163-page ruling yesterday.