Coal Ventures $2.7-bn war chest loses sheen

Written by Indronil Roychowdhury | Kolkata May 30 | Updated: Jun 1 2008, 03:16am hrs
The sharp increase in coking coal assets globally has dwarfed the $2.7 billion war chest of Coal Ventures International, the special purpose vehicle created by five government-owned companies to buy coal mines abroad.

Steel Authority of India Ltd, Coal India Ltd, NTPC Ltd, Rashtriya Ispat Nigam Ltd and National Mineral Development Corp (NMDC) had contributed a total equity of $900 million to set up Coal Ventures International, which also took on $1.8 billion in debt.

PK Bishnoi, chairman and managing director of RINL, who heads the SPV, said prices of coal mines abroad have gone up by 5-6 times and their owners are sitting on cash piles. They no longer need equity joint ventures or any other form of tieup.

CVI may have to go for hostile acquisitions to secure coal assets abroad at the given situation, Bishnoi said.

In fact, he said, even a $5 billion corpus would be small now. Some say the government should create a $50 billion wealth fund, but the government is reportedly averse to wealth funds in general.

Bishnoi said the government should float a sovereign wealth fund or allocate something from its foreign exchange reserves to support strategic investment.

There can be a greater role of the ministry of external affairs in supporting acquisitions, Bishnoi said.

CVI had proposed three routes: * strategic investment in shares of listed coal companies in Australia, Canada and the US. * Private equity deals with unlisted companies, partners or owners having producing or non producing coal assets. *Applying for prospecting mining licenses to develop coal mines.

He said 16 top investment bankers from across the globe have responded to the expression of interest (EOI) floated by CVI for a merchant banker which would help acquire the coal assets abroad.

An apex committee with five independent directors has been formed to select the merchant banker. The merchant banker would scout for coal assets in the US, Canada, Australia, Zimbabwe, South Africa, Indonesia, Mozambique and New Zealand.

The SPV has already identified a block in Mozambique, which could become its first acquisition, Bishnoi said.

Sources close to the development told FE that a six-member technical team visited Mozambique in January and identified a 230-sq km block, of which a 20sqkm patch is assumed to have coal reserves.