ICVL's Coal Acquisition Plans Hit Roadblock Over Bank Guarantee

Strategic Insights -

The International Coal Ventures Pvt. Ltd (ICVL) plans to acquire a 24% stake in MEC Coal, a Singapore-based company, have encountered a roadblock with NTPC Ltd, one of the promoters, insisting on a bank guarantee against the $200 million upfront payment. This condition has been met with resistance from ICVL, which is keen to invest directly in PT TOP Indonesia, the MEC entity that owns the Indonesian coal mines. The deal aims to source 6 million tonnes per annum (mtpa) of coal at a 15% rebate and another 4 mtpa at the market price. The acquisition is a part of ICVL's strategy to secure overseas coal assets, set up by five state-owned firms to meet the growing demand for coal in India.

Key Takeaways:

  • NTPC Ltd, a promoter of ICVL, has insisted on a bank guarantee against the $200 million upfront payment for the acquisition of a 24% stake in MEC Coal.
  • ICVL plans to invest directly in PT TOP Indonesia, the MEC entity that owns the Indonesian coal mines, instead of through a holding company.
  • The deal aims to source 6 million tonnes per annum (mtpa) of coal at a 15% rebate and another 4 mtpa at the market price.
  • NTPC's nod is necessary for the deal, as apart from being one of the five companies that set up ICVL, the coal from the mines is to be used for its projects.
  • Coal is critical for NTPC, with at least 80% of its installed capacity running on the fuel.
  • ICVL has not been successful in securing coal resources from foreign companies, unlike private Indian firms.
  • Bids by Indian miners tend to be relatively uncompetitive, as they often seek coal for their end-use projects.
  • ICVL has gone up against Chinese coal miners like China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd in the acquisition process.

Statistics:

  • Coal from the mines is to be used for NTPC's projects, with the company planning to increase installed capacity from 34,194 megawatts (MW) now to 75,000 MW by 2017 and 128,000 MW by 2032.
  • NTPC needs 160 mt of coal in fiscal 2012, of which around 16 mt has to be imported.
  • The company has already placed orders for importing 12 mt.
  • India has a known coal gross resource base of 264,000 mt, the fourth largest in the world.
  • Demand for coal in India is around 600 mtpa and is set to touch 2,340 mtpa by 2030.

Sources:

  • "Utpal Bhaskar, July 08, NEW DELHI -- International Coal Ventures Pvt. Ltd's plans to acquire a 24% stake in Singapore-based MEC Coal may come unstuck..." (Mint, New Delhi)
  • C.S. Verma, chairman, Steel Authority of India Ltd (SAIL) and head of ICVL said, "the transaction is under discussion," (Mint, New Delhi)
  • An MEC spokesperson said in an email that "MEC is in discussions with a number of off-takers in both India and China, with equity and without equity..." (Mint, New Delhi)
  • Dipesh Dipu, director of consulting, energy and resources, and mining at Deloitte Touche Tohmatsu India Pvt. Ltd, said, "the success of entities such as ICVL would be a function of the 'cohesion between the entities that comprise the consumers and the miners'..." (Mint, New Delhi)