GMR Energy Ltd (GEL), a subsidiary of GMR Infrastructure Ltd, will acquire 30 per cent stake in Indonesia’s PT Golden Energy Mines Tbk, or GEMS, for $450-$550 million (Rs 2,000-2,500 crore) in cash, joining the line of Indian firms buying coal assets across the globe to seek fuel security.
The acquisition will be funded through a combination of debt and internal accruals made through an offshore special purpose vehicle domiciled in Singapore. The deal is expected to close by the year-end.
GMR Energy on Friday said it had entered an agreement with the Sinar Mas Group company. As part of the transaction, GEL has entered an offtake agreement with the Indonesian firm, which entitles it to purchase coal over the next 25 years. The annual quantity will steadily increase to 10 million tonnes over the coming years.
Calling the venture a very potent combination, B V N Rao, Business Chairman of GMR Energy, said, “It will provide fuel security for our power plants under construction, and also support further capacity addition and trading.”
The company has 17 power assets at present, of which four are operational and 13 in various stages of implementation. This is expected to multiply its current power generation capacity to 6,000 Mw from the current 808 Mw in the next three-four years.
Highlighting GEMS's coal reserves of over 860 million tonnes and coal resources of 1.9 billion tonnes, GMR Energy CEO Raaj Kumar said, “GEMS represents a unique opportunity to invest in a high-quality asset, with a strong growth potential.” The offtake agreement will give GEL access to the required quality of coal from one of the lowest cost producers in Indonesia.
Indian firms have rushed to find coal mine assets in Indonesia, South Africa and Australia to fill the growing gulf between domestic coal output and demand. GVK Power and Infrastructure, which has been scouting for coal mines for the past two years to fuel its power plants, is also in advanced talks to buy a coal mine owned by Australia’s Hancock Prospecting.
An offtake agreement is between a producer of a resource and a buyer to sell or purchase portions of the producer's future production. It is negotiated prior to the construction of a facility, such as a mine, in order to secure a market for future output from the facility.
Last year, GMR Energy sold 50 per cent stake in the US-based utility Intergen NV to a consortium led by China Huaneng Group for $1.23 billion. GMR will use $1 billion of that to cut debt. Its net debt, as on December 2010, stood at Rs 14,628 crore.