Thu,November 17, 2011
Mumbai: JSW Steel had plans to transfer thermal coal mine to the power arm, but the boards have yet to discuss the transfer.
Sajjan JindalJSW Steel had plans to transfer thermal coal mine to the power arm, but the boards have yet to discuss the transfer.
One may call it the curious case of the coal mine in Mozambique for the $7-billion diversified JSW Group.
At a time when its power arm, JSW Energy, is severely hamstrung due to the lack of captive coal resources to fire its thermal power portfolio, analysts and company shareholders are puzzled at the delay in transferring an existing coal mine within group companies.
Two years ago, during launch of the Rs 2,700-crore JSW Energy IPO, Sajjan Jindal, chairman of the group, had said JSW Steel was looking at selling the Mozambique coal mines to group company JSW Energy for Rs 300 crore. The decision was taken after it was discovered the majority of coal in the mine was thermal, more suited for power production.
Steel companies use coking coal. Considering JSW Energy did not possess any captive resources, the Mozambique mines were considered strategic.
But in the last two years, neither board has been able to finalise the transfer of the crucial asset.
When asked, Pramod Menon, CFO, JSW Energy, said the respective boards were yet to take up the transfer. "It is an issue which has to be considered by the boards," he said.
When asked why the two boards hadn’t discussed the issue, he said, "They are two separately-listed entities and one of them has an asset which belongs to them. Today, we have not yet considered the asset from the (JSW) Energy's perspective, nor have we got anything from (JSW) Steel if they would like to sell."
A corporate lawyer, who isn't allowed to speak to the media, said, "Since it is a non-core asset there should not be an issue in the deal, provided both boards agree upon the sale and the pricing, etc."
He said it was normal for companies to have such transactions within group companies. "There are a lot of asset transfers that happen within companies. But they have to take care that the deal is at arms-length."
JSW Energy said there were logistic challenges in Mozambique and the company would look at the merits of the projects before it is offered to them. Sajjan Jindal is the chairman and managing director of JSW Steel, as well as JSW Energy.
JSW Steel also has its own captive power plant of 300 Mw, which would be commissioned soon. The company might be keeping the coal block for their own use, Menon said.
Questions sent to JSW Steel remained unanswered.
An analyst tracking the sector and the company, said, "JSW Energy has been looking to acquire coal assets abroad and the Mozambique coal block transfer was definitely a positive story. However, we are yet to see the two companies make the deal."
Volatile coal prices have been consistently denting the profitability of JSW Energy, as even now the company predominantly relies on spot market deals to source raw material, having no long-term fuel security.
Imported coal prices have risen 30 per cent in the last one year and availability from Indian sources like Coal India have become extremely unreliable.
But what seems more odd is the fact, when the resource crunch is severely hurting the company's growth, there is no work ongoing also to develop the Mozambique mines and they are lying idle.
For the quarter ended September, the company's fuel costs grew 86 per cent on soaring spot coal prices, resulting in a net loss ofRs 109 crore, even as its income grew 18 per cent. A depreciating rupee further hit the company's earnings.
In the last one year, JSW Energy stock was down 60 per cent. On Wednesday it closed at Rs 46.4/share.
However, L K Gupta, deputy managing director, JSW Energy, said the company will definitely spring back to profitability in the third quarter as coal prices were coming down and its various expansion plans were getting commissioned.
Talking about efforts being undertaken to identify new sources of coal. Menon said that there is a drop in coal indexes in North and South America and the company is finding very attractive rates to tie up coal. "In terms of acquisitions, we are still looking out for opportunities. As and when we come across any asset which is making economic sense and in terms of size which we can chew, we will look at it. At this point in time we are evaluating assets but there is nothing that we can talk about.""For acquisitions, the question is what kind of landed cost of coal we are looking and if the acquisition can be a long term one.
Our balance sheet is very strong. Our consolidated net debt gearing is 1.7 times. So, in terms of leveraging and buy-outs it will not be an issue. We can look at an acquisition in the region of $250-$500 million," Menon added. Earlier this year, the company made a failed attempt at buying Canadian coal miner CIC Energy's asset in Botswana for $418 million. The company even extended the deadline to complete the deal once but decided to call off the deal. There have been rumours that JSW Energy might bid for New Hope of Australia. However, the company denied the news categorically.
(sourced BS)
Mumbai: JSW Steel had plans to transfer thermal coal mine to the power arm, but the boards have yet to discuss the transfer.
Sajjan JindalJSW Steel had plans to transfer thermal coal mine to the power arm, but the boards have yet to discuss the transfer.
One may call it the curious case of the coal mine in Mozambique for the $7-billion diversified JSW Group.
At a time when its power arm, JSW Energy, is severely hamstrung due to the lack of captive coal resources to fire its thermal power portfolio, analysts and company shareholders are puzzled at the delay in transferring an existing coal mine within group companies.
Two years ago, during launch of the Rs 2,700-crore JSW Energy IPO, Sajjan Jindal, chairman of the group, had said JSW Steel was looking at selling the Mozambique coal mines to group company JSW Energy for Rs 300 crore. The decision was taken after it was discovered the majority of coal in the mine was thermal, more suited for power production.
Steel companies use coking coal. Considering JSW Energy did not possess any captive resources, the Mozambique mines were considered strategic.
But in the last two years, neither board has been able to finalise the transfer of the crucial asset.
When asked, Pramod Menon, CFO, JSW Energy, said the respective boards were yet to take up the transfer. "It is an issue which has to be considered by the boards," he said.
When asked why the two boards hadn’t discussed the issue, he said, "They are two separately-listed entities and one of them has an asset which belongs to them. Today, we have not yet considered the asset from the (JSW) Energy's perspective, nor have we got anything from (JSW) Steel if they would like to sell."
A corporate lawyer, who isn't allowed to speak to the media, said, "Since it is a non-core asset there should not be an issue in the deal, provided both boards agree upon the sale and the pricing, etc."
He said it was normal for companies to have such transactions within group companies. "There are a lot of asset transfers that happen within companies. But they have to take care that the deal is at arms-length."
JSW Energy said there were logistic challenges in Mozambique and the company would look at the merits of the projects before it is offered to them. Sajjan Jindal is the chairman and managing director of JSW Steel, as well as JSW Energy.
JSW Steel also has its own captive power plant of 300 Mw, which would be commissioned soon. The company might be keeping the coal block for their own use, Menon said.
Questions sent to JSW Steel remained unanswered.
An analyst tracking the sector and the company, said, "JSW Energy has been looking to acquire coal assets abroad and the Mozambique coal block transfer was definitely a positive story. However, we are yet to see the two companies make the deal."
Volatile coal prices have been consistently denting the profitability of JSW Energy, as even now the company predominantly relies on spot market deals to source raw material, having no long-term fuel security.
Imported coal prices have risen 30 per cent in the last one year and availability from Indian sources like Coal India have become extremely unreliable.
But what seems more odd is the fact, when the resource crunch is severely hurting the company's growth, there is no work ongoing also to develop the Mozambique mines and they are lying idle.
For the quarter ended September, the company's fuel costs grew 86 per cent on soaring spot coal prices, resulting in a net loss ofRs 109 crore, even as its income grew 18 per cent. A depreciating rupee further hit the company's earnings.
In the last one year, JSW Energy stock was down 60 per cent. On Wednesday it closed at Rs 46.4/share.
However, L K Gupta, deputy managing director, JSW Energy, said the company will definitely spring back to profitability in the third quarter as coal prices were coming down and its various expansion plans were getting commissioned.
Talking about efforts being undertaken to identify new sources of coal. Menon said that there is a drop in coal indexes in North and South America and the company is finding very attractive rates to tie up coal. "In terms of acquisitions, we are still looking out for opportunities. As and when we come across any asset which is making economic sense and in terms of size which we can chew, we will look at it. At this point in time we are evaluating assets but there is nothing that we can talk about.""For acquisitions, the question is what kind of landed cost of coal we are looking and if the acquisition can be a long term one.
Our balance sheet is very strong. Our consolidated net debt gearing is 1.7 times. So, in terms of leveraging and buy-outs it will not be an issue. We can look at an acquisition in the region of $250-$500 million," Menon added. Earlier this year, the company made a failed attempt at buying Canadian coal miner CIC Energy's asset in Botswana for $418 million. The company even extended the deadline to complete the deal once but decided to call off the deal. There have been rumours that JSW Energy might bid for New Hope of Australia. However, the company denied the news categorically.
(sourced BS)
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