Coal news and updates

Top Indian conglomerates led by the Aditya Birla Group, Vedanta, Adani and Jindal Steel and Power were set to bid aggressively for coal blocks because of an urgent need to keep their plants running, analysts said here. While Hindalco has qualified to bid for 15 blocks, Birla Group’s UltraTech has applied for six. Vedanta group companies can bid for 17 coal blocks and the Jindal brothers have qualified for 14, according to the list announced by the government on Thursday. Bidding in an e-auction will begin this weekend.

 

“We do not have separate funding for the auction. The requirement is not going to be much as just 10 per cent of the net present value will be needed initially. We will fund the auction through internal accruals,” said Hindalco’s Chief Financial Officer Praveen Maheshwari. On December 31, Hindalco had Rs 6,000 crore cash. The government is planning a reverse auction for the power sector where the lowest bid decides the winner. By design, the auction is a trade-off between better coal availability  and a lower return due to a potential downward revision of the energy rate. The reverse-auction process implies energy rates will either be revised downward or at best be maintained, according to Kotak Institutional Equities.

 

“Incumbents such as Jindal Steel and Power, Sesa Sterlite, Jaiprakash Power Ventures and KSK Energy Ventures will have an advantage in winning coal blocks because of the proximity to coal mines, sunk capital cost on mine development, and sale arrangements (or their absence) that minimise reduction in energy charges,” Murtuza Arsiwalla of Kotak said in a note today. “Taking into account the balance sheet size of Sesa Sterlite-HZL, Hindalco-Ultratech and Jindal Power, it will not be difficult for these companies to bid aggressively for the blocks as coal will be a passthrough,” said an analyst with Motilal Oswal Securities.

 

Hindustan Zinc and Sesa Sterlite have sizeable cash piles while Sesa Sterlite, Ultratech and Ambuja have favourable debt-equity ratios.

 

Hindalco has bid for 80 per cent of the available non-regulated mine capacity through eight of the 15 available coal mines and has placed multiple bids for each mine. “Multiple bids provide flexibility to select favourable mines during bidding,” said an analyst with Motilal Oswal Securities. Hindalco has four power units at Mahan, Aditya, Renukoot and Hirakud.

 

Rival Sesa-Sterlite is bidding through Balco, Hindustan Zinc and its Jharsuguda unit. Sesa-Sterlite has also made multiple bids for the same coal block and is well spread across the blocks on offer. Balco is better placed in terms of distance to most mines than Sesa-Sterlite’s Jharsuguda unit or Hindalco, while JSPL has an advantage for some of the larger mines like Gare-Palma-IV-1 and IV-7. "We believe they (Jindals) will face competition mainly from Adani, GMR, KVK, DB Power and Sesa Sterlite, which also have plants in the vicinity," said Sanjay Jain of Motilal Oswal.

 

 

Source: http://www.business-standard.com/