KOLKATA: Coal IndiaBSE 1.64 % has received 32 proposals from Indonesia,Australia, the US, Mozambique, Chile and Columbia in response to its expression of interest for acquiring overseas coal assets. A few of these offered their properties during an earlier attempt.
"Companies primarily from Indonesia, Australia, the US and Mozambique offered various proposals ranging from outright sale to a minority stake in their assets. We have also received a couple of proposal from Chile and Columbia," Coal India chairman Narsing Rao said.
Armed with a war chest of about Rs 30,000 crore, the world's largest miner plans to shortlist and begin serious negotiations in next three months and complete acquisition within a year. Coal India is looking at a majority stake or outright purchase of these assets.
"The intention is to acquire blocks so that the coal extracted can be shipped to India for use in thermal power stations. Hence we will look at buying majority in assets and not companies," the chairman said.
A sharp fall in international coal prices triggered a fresh hunt for foreign assets by CIL earlier this year. Earlier, the monolith's efforts to acquire coal assets abroad failed as it could not manage to get assets that would give an assured 12% return on investment. Now with estate prices falling, the company is eyeing majority stakes in such assets.
Internal rate of return (IRR) is used in capital budgeting to measure and compare profitability of investments. The economic rate of return, also known as return on investment (ROI), is a measurement of the ability of an asset to appreciate in value. This time too, the government has sought the standard 12% return on investment.
Once CIL shortlists the proposals and has details of the properties and the 3D seismic data as well as financials of the company, the CIL board will consider factors such as cost of logistics, the distance from the port, and so on. The chairman was quite upfront on this. He said while cost of assets had declined to make these attractive targets, he would abandon the process if he could not ensure 12% of assured return on investments.
Among companies that engaged in serious negotiations in the last attempt that was abandoned in 2012, Peabody Energy, Massey Energy and Sinar Mas. Peabody Energy,Massey Energy Company, Murray Energy Corporation, ExStrata and Australia's Rio Tinto as well as Hancock Mining had also shown interest in the previous round.
Thermal coal prices have declined by over 25% on an average in the last few months and this has had an effect on coal assets too. Prices have declined between 19% and 27% inIndonesia and about 21% in Australia. According to reports, American coal producers, on the back of declining prices, have been forced to reduce output, lay off workers and close mines as a number of power plants have started using gas instead of coal. This has also triggered a decline in asset valuation.
"We need to be quick, because if we delay the process, assets may not be available as these companies will have the compulsion of engaging with other parties for sale," Rao said