With the Indian economy back on the track after the slowdown, merger and acquisition (M&A) activities in the resource sector are likely to pick up momentum in the coming year. After establishing a foothold in the global oil and gas asset market, India now eyes coal assets.
Meanwhile, the Indian government has proposed key changes in the existing mines and minerals development act (MMDR to allow trading of exploration and mining concessions to attract foreign investors. If the these legislative changes are approved, Indian mining sector, especially coal, might see a flurry of M&A activities.
?Given the proposed capacity addition in the power, steel and cement sectors, Indian companies are looking outside for coking and non-coking coal,? Dilipkumar Jena, knowledge manager, mining and mineral advisory services, PwC, said.
Companies like Reliance Power, Tata Power, JSW and Lanco Infratech have acquired coal assets abroad. Others like NTPC and Steel Authority of India are scouting for the acquisition of coal assets.
?Indian companies are going for acquisition of coal assets abroad because there are issues in domestic coal supply. Besides, they have also realised that they can make profits by selling coal in the free market,? Kuljit Singh, partner, infrastructure practice, Ernst and Young (EY), said.
?The acquired coal (thermal) will either go into power generation or trading, depending on where the profit is higher,? Singh added.
The government is set to implement mandatory tariff-based competitive bidding from January 6. This could sharpen the appetite of Indian power project developers for acquiring thermal coal assets because secure fuel supply would be a critical factor in ensuring success in the upcoming bidding regime for the allocation of power projects.
?Power companies will continue to secure coal supplies overseas to feed power plants back in India,? Kalpana Jain, senior director, Deloitte India, said. ?We will have a lot of scramble for mining resources like coal and oil and gas. Even medium-sized companies can go out and buy assets abroad. Africa is going to be an important destination for Indian companies,? Jain said.
?Shale gas acreages could also be of interest to Indian companies,? she added. But Jain was less bullish on the prospect of M&A activities in the Indian oil and gas E&P industry.
?Many new players entered the Indian E&P market during the recent boom in the industry. But now there is a realisation that E&P business is complicated and capital-intensive,? Jain said.
Ajay Arora, partner, and national oil & gas leaders, E&Y, sounded optimistic about the prospect of M&A activities. ?More and larger-sized deals should be done in the coming year, in both the oil E&P and the mining sector,? Arora told FE.
India’s hunt for overseas coal assets is likely to become more frantic and wider than it quest for oil and gas reserves in the coming years, with the government charting ambitious infrastructural development plans.
It is mostly public sector companies like ONGC Videsh and Oil India that have been engaged in the pursuit of opportunities for the acquisition of oil and gas assets overseas.
But when it comes to the acquisition of coal assets, private and public sector companies are equally active. The bounce back in the economic growth might also encourage Indian companies to go out and acquire coal assets abroad.
Meanwhile, the domestic mining sector is also on the cusp of a major change, with the government planning key changes in the MMDR Act to allow transfer of mining leases ?Most of foreign companies would be interested to invest in the Indian mining sector given the proposed changes in the MMDR Act, which provide for trading of exploration and mining concessions,? Jena said.
?If the new mineral policy comes through, there will be a lot of inbound investment in the coal sector,? the Deloitte consultant said
