Lanco Infratech will make payment in three instalments over next four years for buying out the Australian mining company Griffin Coal for which a definitive agreement was signed by the two sides on Wednesday.
Lanco will finance the deal through a mix of debt and equity. ICICI Bank has agreed to provide the required loan to help the Indian power generator finance the deal, a senior executive of Lanco said. While the company executive declined to give the exact price for the deal, industry sources put the figure at $750 million. ?We will make part payment to Griffin Coal upfront. The balance amount will be paid in two instalments at equal interval of two years. The entire payment is to be paid over four years,?G Venkatesh Babu, managing director, Lanco Infratech, told FE. ?ICICI Bank will fund the acquisition deal in the mode of project financing. Initially, the loan will be on the balance sheets of Lanco Infratech but later it will shift to the acquired company?s balance sheets,? he elaborated. Although he did not give a break-up of debt and equity financing for the acquisition of the coal company, it could be in a 70 and 30 ratio, industry experts said.
The acquired company?s mine, which is just 85 km away from the nearest port in Western Australia, is currently producing four million tonnes per annum (mtpa) but has the potential to produce 15-18 mtpa coal. The mine is connected to the port through a rail line.
?In India, the landed price for coal from the mine works out to $80-85 a tonne. On a calorific value basis, this is about $25 a tonne lower than the current landed price basis for coal available from the international market,? Babu said. Coal India is struggling to increase its coal production because of serious constraints in acquiring land and securing environmental clearance for its mining projects.
As a result, it has been forced to curtail coal supplies to power projects. Coal supplied by CIL to private projects is enough to meet only 70% of the fuel requirement of power projects. Developers have to meet the domestic coal shortfall through impots. However, the existing tariff-based bidding guidelines for allocation of power projects do not allow the developers flexibility to increase fuel price in line with the movement in the international coal market. Lanco might leverage the fuel cost advantage while bidding for allocation of power projects.
?We will augment the capacity of the existing rail line network between the mine and the port to transport enhanced coal production,? the Lanco Infratech MD said. ?The biggest logistical advantage of the acquired coal mine is that we do not have to build a new port for shipping coal to India. The port is already there and we just have to put up a captive jetty,? Babu said.
Lanco has installed power generation capacity of about 2,100 mw, which it plans to expand to over 4,000 mw by the end of the current financial year. Meanwhile, it has also lined up power projects worth 5,000 mw capacity for implementation. It has already achieved financial closure for these projects. The company company plans to develop another 6,000 mw capacity in the third phase, taking its installed generation capacity to 15,000 mw by 2015. Of this, about 12,000 mw is to be fired by coal.
