GVK To Sell Stake In Australian Coal Projects

It looks like the Indian power companies are unable to manage their overseas acquisitions. The recent cases of Indian companies selling their overseas assets clearly indicate this. After Lanco and GMR sold their stake in a few overseas projects, GVK Power and Infrastructure (GVKPIL) is now planning sell its stake in Australian Coal and Infrastructure projects which it had bought in September 2011. The financial details of the project are not disclosed yet.

Some private power companies like GMR Infra, Adani Enterprises, Tata Power, GVKPIL, Lanco Infra carried out a few acquisitions of the international coal and infra assets between 2008 and 2012, and these are now proving to be very costly for them.

GVKPIL and its promoters had bought 79% stake from the international mining major Hancock in 2011 for USD 1.26 billion (Rs 6850 crore). The deal included acquisition of a majority stake in coal resources, railway lines and port infrastructure projects of Hancock Coal. The deal was done by the GVK Coal Developers (Singapore), a step down subsidiary of GVK Natural Resources. GVKPIL holds 10% stake in GVK Coal Developers (Singapore), and hence only 10% stake in the original deal was held by GVKPIL.

GVK had also announced a huge capex plan of USD 10 billion (about Rs 50,000 crore) to develop mines, rail and port infrastructure. The capex plans, however, looked huge and it was almost certain that the execution would be very difficult.

The company has now proposed to sell 51% of its stake in these projects to Australia's largest rail-freight company Aurizon. It seems that the stretched balance sheet of the company has made it difficult for the company to meet its original commitment.

After the acquisition in 2011, GVK Chairman GVK Reddy had said that the acquisition would build a strong resource business for the company, and that it would significantly enhance the value of GVKPIL's shareholders. He was also optimistic on the power business and had said that the company would be able to increase the capacity of its power business with the captive coal supply.

Things have, however, not turned out in line with the plans. GVK's vice-chairman G V Sanjay Reddy, on the Aurizon deal announcement, said that the group originally entered the Australian market mainly for the coal assets and not for developing the supporting infrastructure.

The question arises as to why the company entered the project and announced a huge capex plan if it only intended to acquire the coal assets. Also, if it is determined about acquiring the coal assets then why is it selling 51% stake in the project.

Despite having in-house coal mines, GVK's power business has not achieved any significant improvement. In fact, the revenues from this business segment have shown an erosion of the topline for the first nine months of the fiscal FY13. It is understood that the company is operating only gas-based power projects which are suffering due to the lower gas availability in the country. The company has a few coal-based power generation projects in the pipeline though. What would happen to these projects if the company is selling its stake in the coal mines?

The power sector has been a risky investment in the last 2-3 years and hence the investments of these companies have become very dicey too. After the three private power companies have sold their overseas assets, it will interesting to see how things turn out for Tata Power and Adani Enterprises which also have overseas coal mines.