Anil Agarwal creates BHP-style Indian resources major
Anil Agarwal has sealed the merger of his mining and energy businesses in India, creating a BHP Billiton Ltd-like resources conglomerate, even as a recent investment in Anglo American Plc. raises questions about how far the billionaire’s ambitions stretch.
Vedanta Ltd combined with unit Cairn India Ltd on Tuesday and fixed 27 April as the record date for determining the list of the latter’s shareholders who will be allotted stock in the parent company, according to a joint statement. Vedanta will offer minority shareholders of oil producer Cairn India one equity share and four redeemable-preference shares with a face value of Rs10 each as part of the deal agreement.
The merger gives shareholders a company with a diverse portfolio encompassing iron ore, bauxite, aluminium, power, oil and gas that has the ability to ride out commodity cycles. Agarwal, a self-made billionaire, recently surprised the mining industry by becoming the second-biggest shareholder in Anglo American through an unusual deal that led analysts to speculate he might be planning to force a break up of or a merger with the century-old miner.
“This merger will increase the appeal of Vedanta Ltd to global investors as it simplifies the structure and increases the size and free float of the company,” Tom Albanese, chief executive officer of Vedanta, said in the statement. The firm will continue to focus on remaining a low-cost and low-debt operator, he said.
Agarwal’s fortune has been built on a series of ambitious acquisitions: In 2001, he bought control of then government-owned Bharat Aluminium Co. in one of the first tests of India’s efforts to offload state holdings. He followed with another government entity, Hindustan Zinc Ltd, in a deal that drew the attention of the nation’s top investigating agency. He successfully bid for what was India’s largest iron ore producer Sesa Goa Ltd. in 2007 and for Cairn India in 2010, despite having no oil and gas experience.
Last year, Anglo American was said to have rebuffed informal approaches from the billionaire to discuss ideas including a combination with Hindustan Zinc Ltd.
The Vedanta-Cairn combine was proposed by Agarwal in 2015, but delayed after Cairn shareholders held out for a better deal, which was offered last year.
It will allow India’s most-indebted metals company after Tata Steel Ltd. to access Cairn’s cash pile, which stood at Rs26,000 crore ($4 billion) at the end of December. Vedanta’s debt at the time was Rs65,000 crore, while Cairn is debt-free.
“They are under pressure because of the heavy debt and the merger is planned only because of this,” said Kishor Ostwal, managing director of CNI Research Ltd, an equity research provider in Mumbai. The strong commodity cycle has benefited the group and improving raw material prices will give them a further advantage, he added.
Vedanta shares have nearly tripled in the past year, leading gains among India’s 100 largest companies. It advanced in March after unit Hindustan Zinc announced a special dividend of about $2.2 billion, of which the parent will get about $1.4 billion. The dividend payout will cover 68% of Vedanta’s debt maturities in the fiscal year ending March 2018 and alleviate near-term refinancing risk, according to Moody’s Investors Service.
“The stock looks very interesting and our bias is positive,” Ashish Chaturmohta, head of derivatives and technicals at Sanctum Wealth Management Ltd, said by phone. “The dividend mostly is going to go for debt reduction and so will the cash with Cairn,” he added, saying the stock can move up further.
Shares of Vedanta climbed 2.6% to Rs259.25 in Mumbai on Wednesday. The merged company will have a market-capitalization of about $15.6 billion and a higher free float of shares of 49.9%, according to Tuesday’s statement.
Vedanta’s 6% 2019 dollar notes rallied 42% in the past year as the company reduced its leverage and strengthened prospects for repayments with dividends
JSW Steel raises USD 500 million through unsecured notes
Sajjan Jindal-led JSW Steel has raised USD 500 million (around Rs 3,234 crore) through an issue of fixed rated senior unsecured notes.
"The company has raised USD 500 million by allotment of fixed rate senior unsecured notes," JSW Steel said in a filing to BSE today. The notes will be listed on Singapore Exchange Securities Trading Ltd, the company said.
The company had earlier said that it is "capable" of spending up to USD 1 billion (around Rs 6,500 crore) per annum on both capacity expansion and acquisitions.
The company plans to bid for iron ore and coking coal mines in the upcoming auctions, JSW Steel Joint MD and Group CFO Seshagiri Rao had said.
It would participate in the auction of two iron ore mines in Odisha and of coking coal mines in Jharkhand, he had said. The company imports around 8 million tonnes of coking coal every year.
JSW Steel, the flagship firm of USD 11 billion JSW Group, has plants spread across six locations in Karnataka, Maharashtra and Tamil Nadu. Shares of the company fell by 1.16 per cent to close at Rs 196.40 on BSE.
India hopes to auction coal blocks for commercial mining by end-December
India aims to auction coal blocks for commercial mining by end-December, coal secretary Susheel Kumar told television channel ET NOW on Thursday.
The country is the world's third-biggest producer and importer of the fuel, and with coal accounting for about 70 percent of India's power generation, the government wants to boost domestic output to cut imports.
http://in.reuters.com/article/india-coal-idINKBN17F0FT
Supreme Court to hear coal blocks allocation scam case today
The Supreme Court will on Thursday hear cases pertaining to the coal block scam.
The special Central Bureau of Investigation (CBI) court on April 10 granted interim bail to all five fresh accused in the coal scam case involving the Jindal coal block matter.
Earlier, the court took cognizance on the fresh chargesheet in which CBI named the five persons as accused in the scam.
The CBI had mentioned names of Jindal Steel and Power Ltd's adviser Anand Goel, Gurgaon-based Green Infra's vice-president Siddharth Madra, Nihar Stocks Ltd director B S N Suryanarayan, Mumbai-based KE International's chief financial officer Rajeev Aggarwal, and Mumbai's Essar Power Limited executive vice-chairman Sushil Kumar Maroo.
While opposing the regular bail plea of Sushil Kr Maroo and Anand Goel, the CBI lawyer alleged that both the accused are a threat to the witness (Suresh Singhal) and have also allegedly slapped him in the court premises.
The (CBI) on March 24 charged five more persons in a coal block allocation case against former Congress lawmaker and industrialist Naveen Jindal and others.
The fresh supplementary chargesheet was filed before Special Judge Bharat Parashar.
Reliance starts CBM gas production from two blocks in Madhya Pradesh
Reliance Industries Ltd (RIL) has begun commercial production of coal bed methane (CBM) gas from two blocks in Madhya Pradesh, two people familiar with the development said.
RIL’s move comes after the government approved pricing and marketing freedom for producers of natural gas from CBM on 15 March. The company has deferred production for a while due to lack of clarity over pricing CBM gas. The two blocks are located in Sohagpur East and West.
“RIL has commenced commercial production from 24 March 2017 and expects sales to third party customers from May. RIL has appointed Crisil to help in price discovery process based on CCEA (cabinet committee on economic affairs) approval dated 15 March 2017. We are currently in ramp-up phase and expect to reach around 0.4 mmscmd of production by June 2017. The ramp-up phase will continue further for 15-18 months till we reach plateau production in CBM,” a RIL spokesperson said in response to a Mint query.
RIL had begun test production from the block last April. “But wells had been shut as RIL wanted clarity on gas pricing. In CBM production, you need to de-water many small wells. And the de-watering sometimes takes nearly three years. Thus, RIL may take two-three years to reach peak production,” said the second of the two people mentioned above. RIL was awarded the CBM blocks in 2001, in the first round of CBM auctions.
With this, RIL has become the third company in India to begin CBM gas production. Great Eastern Energy Corp. Ltd (GEECL) and Essar Oil Ltd are the two existing players selling CBM gas in the market. RIL holds another CBM block in Sonhat, Chhattisgarh.
CBM is natural gas stored or absorbed in coal seams. India, with the world’s fourth largest proven coal reserves, holds significant potential for CBM exploration and production. CBM gas is similar to natural gas, containing 90-95% methane.
Reliance Gas Pipeline Ltd (RGPL), an RIL subsidiary, has laid around 312km of pipeline to carry natural gas from Shahdol in Madhya Pradesh close to its CBM blocks to Phulpur in Uttar Pradesh.
An RIL executive, one of the two mentioned earlier, added that initial gas output from RIL block could be around 0.4 million metric standard cubic metres per day(mmscmd). Peak output, however, is envisaged at 2.5-3 mmscmd.
“RIL is best placed to sell its CBM gas as its blocks are centrally located and there will be good demand by industries nearby. Also, the cost of production for RIL may be around $3 per million British thermal unit (mBtu) and even if RIL sells the gas at around $7-8 per mBtu, it would be in a good spot,” said an oil and gas analyst with a domestic broking firm, asking not to be identified.
After SC order, Adani Power might have to write-off Rs 3,500 cr
Adani Power, which has recognised about Rs 4,400 crore from compensatory tariffs (rates) up to December 2016 as part of revenues from its Mundra project, might have to reverse or write off about 80 per cent of this.
According to analysts at Nomura, at least 80 per cent of the CT would be attributed to change in Indonesian coal pricing regulations, which the Supreme Court has disallowed in a ruling on Tuesday. The ruling set aside the Appellate Tribunal for Electricity's (Aptel's) order on CT in April 2016 and comes as a major setback for Adani Power.
Aptel allowed the CT, given the change in coal pricing policy by Indonesia and the unavailability and shortfall of domestic coal. This had been challenged by state electricity boards in the apex court.
On the Tiroda and Kawai projects which have no linkage coal entitlements, interpretation by the Rajasthan Electricity Regulator (RERC) and Maharashtra Regulator (MERC) of shortfall/non-availability of domestic coal as a 'change in law' would be critical, say Anirudh Gangahar and Archit Singhal at brokerage agency Nomura. In their view, full recovery of CT (Rs 3,300 crore recognised so far for the two projects) is still debatable and hence considering the uncertainty on earnings/cash flows outlook in the context of the SC judgment. Nomura maintains a 'reduce' rating on the stock.
While the SC has denied compensation for fuel cost under recovery in the case of units operating on imported coal, it has referred the case back to CERC to quantify the rate relief to be provided to plants that had to resort to higher use of imported coal due to lack of availability of domestic coal. Kotak Institutional Equities says while the fine print of the order makes little change to its interpretation for Tata Power, it brings relief for Adani Power, as not all power purchase agreements (PPAs) will be denied CT. The brokerage maintains its 'sell' rating and target price on Adani Power.
Most analysts have been cautious on the stock. Those at Reliance securities had said after the December quarter results that the company continued to report dismal numbers due to lack of adequate coal supply from its Bunyu mines in Indonesia. This had been forcing it company to blend expensive spot coal inventory, as well as importing more, due to limited availability of domestic coal and PPAs signed at low rates.
Analysts at Edelweiss will review the SC order for legal interpretations, to assess the impact on earnings and valuations of private developers. On the face of it, though, they envisage a Rs 13-18 hit on their sum-of-the-parts (SOTP) target price of Rs 85 for Tata Power. They await further clarity on the Aptel order for Adani Power (SOTP of Rs 28).
Analysts at Ambit Research say Tata Power might look at alternatives like sourcing of domestic coal at competitive prices and raising the plant load factor to sell power to merchant markets. They remain positive on Tata Power, on the back of rising investments in its Mumbai circle and return on equity improvements.
Rio Tinto Wins Coal Exit After $2.45 Billion China Deal Cleared
Rio Tinto Group is closer to an exit from thermal coal after winning approval from Australia’s foreign investment regulator to sell the bulk of its mines to a company controlled by China’s Yanzhou Coal Mining Co. for $2.45 billion.
The Foreign Investment Review Board approved the Coal & Allied deal leaving the world’s second-biggest miner with only two producing coal mines in the country that was once the cornerstone of its energy business. Both Rio and Yancoal Australia Ltd. require shareholder approval with the transaction expected to complete in the third quarter of 2017.
"Today’s FIRB approval is a positive step forward for Yancoal, its shareholders and the Hunter Valley, demonstrating the Australian Government’s support for continued investment into the local resources sector," Yancoal Chief Executive Officer Reinhold Schmidt said in a statement Thursday.
The deal is the first major transaction by Rio under Chief Executive Officer Jean Sebastien Jacques, and may build momentum for other takeover deals in Australia involving Asian companies to proceed.
Foreign investment remains a sensitive issue after Australia’s Treasurer Scott Morrison barred separate bids for state-owned power network Ausgrid last year from Hong Kong billionaire Li Ka-Shing and China’s State Grid Corp. Li now hopes to buy Duet Group in a A$7.4 billion deal and Hong Kong’s Chow Tai Fook Enterprises Ltd. is set to acquire Alinta Energy Holdings Ltd. for A$4 billion. Both takeovers are subject to approval by FIRB.
The sale to Yancoal Australia Ltd. includes an initial $1.95 billion cash payment and $500 million in annual installments of $100 million following completion. Yancoal is yet to secure financing for the deal with investors awaiting details of a capital raising and share offer. Yanzhou has said it would subscribe for $1 billion of its entitlement in the Yancoal offer.
Yancoal, which is 13 percent owned by Asian commodity trading giant Noble Group Ltd., said in January the acquisition would make it Australia’s largest pure-play producer of the commodity. Chinese state-owned Yanzhou Coal owns 78 percent of the Australian Securities Exchange-listed company.
Australian storm may fuel steel price hike in India
With the price of coking coal doubling in the past 10 days, steel in India is set to become dearer.
Coking coal is now priced at $300 a tonne — and expected to rise further — after Cyclone Debbie wreaked havoc at major mines and ports in Australia late last month, disrupting exports from that country.
As per the latest estimate, shipments of 13 million tonnes of coking coal from Queensland, accounting for 50 per cent of the global coking coal supply, is expected to be delayed. Over 32 large vessels are waiting in queue to load coal from the ports, which are limping back to normality.
Nearly all major steel makers in India import most of their coking coal from Australia, which is the biggest exporter of the key raw material.
Jayant Acharya, Director (Commercial & Marketing), JSW Steel, said that while the company is arranging for coking coal from other countries, managing the cost and time will be a major issue.
JSW Steel, which depends entirely on imported coking coal, manages an inventory of 60 days between high sea, port and plant.
It should take at least two months for Australia to regularise coking coal exports, he said.
Demand revives
Interestingly, prices of coking coal from other countries such as the US, Canada and Mozambique have begun rising, in sync with rising coking coal prices in Australia.
Steel companies are likely to pass on the increase in coking coal prices to consumers as demand has begun improving after the lull following demonetisation.
Moreover, steel prices across the globe are expected to go up with the rise in input cost.
Warm Regards
Anurag Singal
Sr Manager –Business Development
Essel Mining & Industries Ltd
14th Floor, Industry House
10,Camac Street –Kol-71
Ph: 033-30518415,9088026252
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