Lanco plans strategic stake sale in Griffin Coal - Quoted in the Mint

Lanco Infratech Ltd, India’s largest independent power producer, said it plans to induct a strategic investor into Griffin Coal Mining Co. Pty Ltd. Lanco bought Griffin Coal mines, located in Collie Basin, in Western Australia, a for A$730 million (around Rs.4,015 crore) in March 2011. The project has the capacity to mine 4 million tonnes of coal per annum (mtpa).

Lanco Infratech chairman L Madhusudhan Rao said he is “not averse” to selling even a majority stake to an investor, provided the asset gets the right value from a “strategic perspective”.

The company is looking for a partner as it plans to spend $1.2 billion to augment Griffin’s mining capacity from 4 mtpa to 18 mtpa in three years. Lanco expects to tie up finances for the expansion by July next year, Rao said.

 

“We are looking at debt syndication and also looking for some sort of a strategic partner to join us,” Rao said.

 

Rao said the company expects to finalize merchant bankers to raise the funds by mid-October.

Lanco plans to spend around $600 million on mine expansion, $500 million on building a port and $100 million on a railway line.

 

The company produced around 3 million tonnes (mt) of coal in the year ended 31 March. It plans to increase production to 3.7 mt in this financial year, of which it plans to export about one-fifth.

Lanco is facing a $3.4 billion lawsuit from Perdaman Chemicals and Fertilisers for terminating a coal supply pact for its proposed urea project.

 

Griffin Coal was to supply 2.8 mt a year of coal to the project for 25 years starting in 2014.

“Lanco’s ability to raise equity funding for the project will depend upon the outcome of the lawsuit it is fighting against Perdaman,” said an analyst at a Mumbai-based brokerage house who did not want to be named because his company’s policy bars him from speaking to the media.

 

Rao ruled out an out-of-court settlement with Perdaman. “We will fight the case till the last minute. We expect an outcome in the case by May next year,” he said.

 

Analysts said raising funds could be challenging in the face of the global economic slump.

Indian energy companies, including Lanco, that are starved for coal are, meanwhile, weighed down by a heavy pile of debt and high interest costs.

 

“A lot of Indian companies which bought coal mines in Australia have done so with a prime objective of supply security,” said Dipesh Dipu, partner at Hyderabad-based Jenissi Management Consultants.

Projects with “technical viability” and “long-term supply orders” are the ones that will attract equity capital, Dipu said.

 

Lanco has an installed capacity of 4,110 megawatt (MW) of electricity, out of which around 73% is thermal and 26% gas-based; hydropower accounts for a little over 1%. The company targeted adding 5,000 MW of capacity, but has put expansion plans on hold owing to high interest costs and a fuel shortage.

 

Lanco has borrowed Rs.33,118.6 crore and interest costs shot up 77% to Rs.539 crore in the quarter ended 30 June compared with Rs.304 crore a year earlier.

 

The firm appointed Macquarie Capital Advisers, a Macquarie Group advisory, to find a strategic investor in its power and solar power businesses. In power, the company is trying to sell stakes at the project level in both thermal and hydropower plants.

 

State electricity boards (SEBs) owe the company around Rs.3,000 crore, Rao said.

“There are a lot of efforts going on of late to make distribution companies liquid, and with most SEBs revising tariffs, I think the situation will be under control in 12-15 months,” Rao said.

 

Shares of Lanco Infratech gained 2.03% to Rs.15.10 on BSE on Friday while the benchmark Sensex rose 0.99% to 18,762 points.