MUMBAI: What is common between Anil Ambani, Gautam Adani, Madhusudan Rao and GV K Reddy? In a race to secure coal assets to fuel their power plants, these billionaires are fast emerging as global coal barons. The companies that they run - Reliance Power,Adani Power, Lanco Infratech and GVK - will feature among the top 10 coal miners in the world, behind Peabody and Shenhua Energy, once they start coal production in coming years.
Peabody Energy, which claims to be the world's largest private sector coal producer, had registered sales of 246 million mt in 2010 and Shenhua Energy's coal production is pegged at 256 million mt according to its website.
However , government-owned Coal India is the world's single largest coal producer with an annual production in excess of 430 million mt. At peak production, some of these Indian firms will have excess coal production compared to such global miners as Rio Trinto, Anglo American , Xstrata, Russian Suek and Indonesian Adaro. Adani, with a resource base in excess of 8 billion mt of coal, plans to produce 200 million mt per annum at peak production, while others plan to produce over 100 million mt per annum each in the coming years.
In spite of having the world's third biggest coal resources after US and China, Indian firms are aggressively acquiring coal assets overseas as most of Indian coal reserves lie in forest areas and cannot be mined for environmental concerns.
Indian coal imports are, therefore, seen rising against a stagnant output and rising demand. Total coal imports in 2010 were 55 million mt, which is likely to climb to 186 million mt by 2014 because of aggressive ramp-up plans by steel and power companies. Michael Cooper, associate editor, Platts International Coal Report, has another reason.
"The quality of thermal coal in India is of very low calorific value with high ash content compared to imported coal, which has comparably higher heating values and, when burned, increases power station boilers' efficiency."
Indian firms have already spent over $10 billion to acquire coal mines overseas and are likely to invest a similar amount in coming years. Adani acquired Linc Energy's Queensland coal tenements in a deal valued at $2.72 billion and agreed to pay another $2 billion in cash for the Abbot Point terminal near Bowen to secure coal delivery. Similarly, Reliance Power has acquired three coal mines in Indonesia with total reserves of 2 billion mt.
The company plans to further invest $500 million to ramp up capacity . "With reserves in excess of 4 billion mt in India and overseas , no doubt we will be among the top 10 coal miners in the world with an annual production of 100 million mt in coming years," Jayarama Prasad Chalasani, Reliance Power CEO, told TOI.
G V Krishna Reddy of GVK Group has also joined the premier league of coal barons. His latest $1.26-billion acquisition in Australia will give him access to 8 billion mt of coal reserves to fuel GVK's power projects in India. Another power company, GMR Energy, had in August agreed to buy a 30% stake in PT Golden Energy Mines for $550 million. The firm had earlier acquired an Indonesian coal company PT Barasentosa Lestari for $100 million.
Others like Lanco with captive coal reserves of 2 billion mt are still scouting opportunities. "Recently, we acquired Griffin coal in Australia for $750 million. We are building a pipeline for acquisitions in Indonesia, Africaand Australia," K Naga Prasad, Lanco's CEO (business development) told TOI. Cooper believes that, going forward, Indian firms will continue to acquire overseas coal assets aggressively.
"India has ambitious plans to expand it steel-making and power-generating capacity and, if its domestic production cannot match this, then it will have to source this coal from overseas or otherwise reduce its targets for steel production and electricity generation," Cooper added.
Undervalued Share Prices :
Indian infrastructure companies may secure the the top 10 global positions by chasing the black diamond overseas, but when it comes to valuations , the stocks of these companies have taken a severe blow.
The fact that shares of Lanco Infratech, Adani Power and Reliance Power are available for discounts of 33% to 75% is because the markets have taken a weak view of their overleveraged acquisitions, litigations and regulatory clearances and possible impact of carbon tax abroad.