Although Tata Power struck a deal with Indonesia-based PT Bumi Resources Tbk for the sale of 30% stake in PT Arutmin Indonesia in January 2014, falling prices of coal have stalled the transaction.
Anil Sardana, CEO & managing director, Tata Power, told FE that the sharp drop in the price of coal had left Bumi’s cash flows under pressure. “None of the units there is now making money,” Sardana said, adding that the arrival of sales proceeds of $510 million would depend on the trend in the price of coal.
The CEO refrained from putting a timeline to the deal. “Unless there is at least a $2-3 improvement in coal price, bankers will never have the courage to put pen to paper, he observed.”
Meanwhile, Tata Power has explored the option of divesting its stake in KPC too, valuing 5% of the 30% stake in the mine at $250 million, but hasn’t gone ahead with a sale agreement.
The Mumbai-based company had picked up 30% in each of two major Indonesian thermal coal producers, PT Kaltim Prima Coal (KPC) and Arutmin in March 2007 for a combined $1.1 billion.
In 2008, the Asian benchmark Newcastle coal index stood at $125 per tonne, more than twice the $60.32 per mt in the week ended June 5. Bumi Resources has been posting losses since FY12 and its cash and cash equivalents balance at the end of FY13 stood at $45.6 million, a fall of nearly 84% compared with the FY12 number, according to Bloomberg data. Net debt rose 8% to $4.3billion as on December 31, 2013.
The company, promoted by the Bakrie Group, defaulted on two of its dollar bonds in 2014. According to Bloomberg, three Bumi units in Singapore, which have $1.375 billion of dollar-denominated debt outstanding, in December filed for Chapter 15 court protection in the US, each listing assets and debt of as much as $1 billion. The company has been termed as Asia’s most indebted coal miner.
“On paper we have both Arutmin and KPC — and their net production this year is upwards of 85 million tonne, so our share is close to 20-24 million tonne, which is much more than we need. We also have the AGM and BSSR (mines) which is close to 7.5 million tonne, and 26% of that is also with us. So we are fully secure (in our coal requirement),” Sardana said.
A decision on compensatory tariff for the company’s ultra mega power project (UMPP) in Mundra in Gujarat has been delayed. On April 22, Standard & Poor’s (S&P) cut its rating outlook for Tata Power from positive to stable due to delays in the decision on compensatory tariff and pending proceeds from the sale of a stake Arutmin.
“We revised the outlook to reflect the likelihood that Tata Power’s cash flows and liquidity will improve slower than we earlier expected,” S&P observed. The agency warned it could lower the rating if Tata Power faces difficulty in rolling over its debt maturities or senses lenders’ discomfort that could affect a meaningful part of the company’s debt.
The Mumbai-based utility is seeking to refinance Rs 10,000 crore of the debt associated with its Mundra UMPP project, by extending the loan tenure.
Analysts believe lenders to Bumi may be holding back their approval for the deal, given the changed pricing environment, and that bankers may be asking for guarantees and collateral.
“We now believe that the Arutmin deal closure is a low probability event, a recent report by JPMorgan noted.