GVK Power Acquires Australia's Hancock Coal for $1.26 Billion, Plans to Invest $10 Billion More

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Infrastructure major GVK Power, part of the GVK Group, on Friday said it has agreed to acquire Australia's Hancock Coal for $1.26 billion, in one of the largest overseas acquisitions by an Indian infrastructure entity.

GVK said the deal, which includes acquiring majority holding in coal resources and railway line and port infrastructure projects of Hancock Coal, will offer the Hyderabad-based company option for long term coal supply contracts for the purchase of up to 20 million tonnes every year. This can support around 7,500 megawatts of power generating capacity.

On August 26, ET had reported that GVK Power was close to acquiring two coal mines from Hancock Coal for about $1.3 billion.

"While this builds a strong resource business for GVK, it will also significantly enhance the value to GVKPIL shareholders as we will now be able to increase the capacity of our coal power business with an assured in house supply of raw material," GVK Chairman GVK Reddy said in a statement.

GVK will pay the consideration in a phased manner to the Hancock Group, with $500 million upfront. About $200 million will be paid in one year from closing the deal and another $560 million on financial closure of the project, which is expected next year.

The Hancock coal project consists of 7.9 billion tonnes reserves.

The deal comes a year after Adani Enterprises bought Australia-based Linc Energy's coal assets for about Rs 12,600 crore in the largest such transaction. In march this year, Lanco, another Hyderabad-based infrastructure major, bought Australia's Griffin Coal for A$750 million.

GVK Power, a flagship of the GVK group, and its subsidiary GVK Energy, have been aggressively trying to secure fuel supply agreements in an energy deficient market for their proposed power plants India. The acquisition enables GVK Power to secure adequate fuel supplies for its power ventures.

Hancock Group chairman Georgina Hope Rinehart, one of Australia's richest women, will join the board of GVK Power as a non-executive director.

The Hyderabad-based infrastructure group said it has tied-up the funding for the acquisition with banks and the financing documents for funding the acquisition are being executed with the banks and the transaction is expected to close and assets transferred in about two weeks.

rnst & Young acted as the financial advisor to GVK for the acquisition. Amarchand & Mangaldas & Suresh A. Shroff & Co were the legal advisors, while Minter Ellison Lawyers were Australian legal advisors to GVK.

GVK estimates a total investment of $10 billion in the first phase of developing the mines, rail line and port. However, it did not disclose details on funding arrangements for this investment.

The transaction was done by GVK Coal Developers (Singapore) Pte Limited (GVKCDPL), a step down subsidiary of GVK Natural Resources. Initially, GVK Natural Resources will hold 90% and GVK Power will hold the remaining 10%. GVK Power has the option to increase its stake up to 49%, subject to necessary approvals from the Foreign Investment Review Board (Australia).

GVK entities have agreed to acquire a shareholding up to 79% in Alpha Corner and Alpha West Coal Projects, located in the Galilee Basin in Queensland, wherein the Hancock Group will retain the remainder of the shareholding.

GVK firms would acquire a 100% shareholding in the Kevin's Corner Coal Project, located immediately adjacent to Alpha. Further, the entities of GVK group will also acquire a 100% shareholding in the rail and port project connecting the above coal projects to the port of Abbot Point and Abbot Point T3 expansion project, whilst retaining some tonnage capacity for the Hancock Group.

The infrastructure project involves the development, ownership and operation of an integrated infrastructure development consisting of a 495 km rail line and a 60 million tonnes per annum port at Abbot Point. At full production, the three coal projects are together expected to supply about 84 million tonnes per annum to the global sea-borne coal market.

GVK said the first phase of production, expected to start in 2014, envisages a total production of over 30 million tonnes per annum of high quality thermal coal. The coal mines will deliver a very high quality thermal coal with a gross calorific value (as received) of about 5800-6000 kcal/kg and low ash and low sulphur content.

Most of the coal from the project is intended for delivery into the Asian region as letters of intent for approximately 45 million tonnes per annum have already been signed or are in the process of finalisation with major utility companies in China, Japan, Korea, Taiwan and Vietnam.


India Brand Equity Foundation, September 17, 2011