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Monday, December 12, 2011

Weak rupee stalls overseas coal mine buys

Monday, 12 Dec 2011

Indian power producers, which were aggressively bidding for coal assets overseas over the past 12 to 18 months, are ‘fighting shy’ in pursuing further acquisitions, courtesy the rising cost of funding such acquisitions after the nearly 19% drop in the rupee since August, near standstill infrastructure sector, recent changes in rules by suppliers such as Indonesia, Australia and Africa, and a fall in their stock valuations, which reduce the ability of promoters to leverage on their, said investment bankers and consultants.

Mr Kameswara Rao leader for energy, utilities and mining at PwC India said that “Companies which have made big coal mine acquisitions in recent times will be very selective from here on as they need time to digest earlier acquisitions.”

According to Mr Sanjay Sakhuja CEO of Ambit Corporate Finance power and infrastructure companies are going through severe stress now. He said that “I am not anticipating any big mining deals by those firms, which have already swallowed big acquisitions.”

There has been tremendous shortage of domestic coal due various problems, including tighter environmental norms, the controversy surrounding mining licences in Karnataka and security threats from Maoist groups near coal mining areas, forcing private power producers to venture outside to source coal for their power projects.

Mr HK Mittal chairman of Mumbai based Mercator told Financial Chronicle that “Indian companies are going slow with their acquisition plans. There are several issues. Power projects are moving at a snail’s pace. Coal prices have also gone through the roof.”

TATA Power, which had been looking at small mines of around 10 million tonnes annual capacity in South Africa, Indonesia and Australia, may be going slow in any new purchase.

Mr S Ramakrishnan executive director of TATA Power recently told FC that the power sector is going through a tough phase in India. He added that “Buying new coal mines will be on hold till such time issues back home are sorted out. High coal prices and issues related to land acquisition have slowed down activities in the power sector. Poor financial health of distribution companies has led to drop in purchase of electricity by them, and merchant power rates have crashed.”

A Deutsche Bank report early this week said that owing to the ongoing and likely persisting coal shortage, India’s power demand-supply gap may not be bridged even in FY15.

(Sourced from

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