You are here: Home » Companies » News

Tata Power's plan to sell Indonesian arms hits valuation hurdle

Falling coal prices bring down valuation by half

Tata Power’s plan to sell stake in two of its Indonesian – Arutmin and Kaltim mines – is in jeopardy, with the valuation of the two falling by half, owing to sagging coal prices.

Global investment banking firm Jefferies has estimated that the combined valuation of Tata Power’s stake in the two firms is now down to $990 million, compared to $2 billion when the deal was signed in 2014. The cash flow from the sale of the projects was to help reduce Tata Power’s consolidated debt that touched Rs 40,120 crore as of March this year.

In January 2014, had announced it would sell its stake in Arutmin back to local Bakrie Group for $500 million. In July 2014, it informed the stock exchanges it had signed an option agreement to sell five per cent stake in Kaltim mines for $250 million to Bakrie Group. It held 30 per cent stake in Kaltim mines. Both transactions have not closed till date, as fell to record lows, making buyers jittery.

Bankers said the local buyer wants to renegotiate the transaction, as the deal is uneconomical for the buyer. The global have softened from $82 a tonne to $59 a tonne and, reflecting the trend, the Indonesian also fell from $64 a tonne to $47 a tonne since 2014. Indonesian coal usually sells for 20-25 per cent discount to global prices due to its lower quality. “Although this drop in prices has helped to reduce losses at its Mundra power project, which is fuelled by imported coal, the falling prices have hit the valuation of its Indonesian thermal hard,” said a banker.

When contacted, a statement said the valuation of Arutmin as on agreement date still holds good, despite any subsequent market valuation changes and, hence, has no relevance to the transaction already done for Arutmin.

Since the transaction was announced, stock has seen a steady decline. The stock fell from its peak of Rs 114 a share in July 2014 to Rs 76 apiece as on Friday.

The company is now aspiring to become one of India’s biggest solar power producers, having taken over Welspun Group’s renewable power portfolio at an enterprise valuation of Rs 9,200 crore. Early this week, it signed a deal with ICICI Venture to set up a fund with a corpus of $850 million to take over distressed power assets in India.

Tata Power's plan to sell Indonesian arms hits valuation hurdle
is not the only company that has seen its calculations over overseas coal mines go awry. The Essar Group, Group, Lanco, and GVK are also facing the brunt of falling coal prices.  Most of the coal mines of top Indian are either making losses or are on the verge of closure. Essar Group’s $600-million investment in Trinity Coal Corp in the US turned bad, as the company went into Chapter 11 in 2013.

Named after the US bankruptcy code 11, Chapter 11 is filed by that require time to restructure their debts, and it gives the debtor a fresh start, subject to the debtor’s fulfilment of his obligations under the plan of reorganisation.

The investments by GVK Group ($1.26 billion in Hancock), Lanco ($600 million in Griffin) and Enterprises ($1 billion) in the Australian coal sector in 2011 remain in the red.

RAKE OVER OLD COALS
  • Jan 31, 2014: sells stake in Arutmin Coal for $500 mn to Bakrie Group
  • July 4, 2014: signs an option deal to sell 5% stake in Kaltim Prima Coal for around $250 mn
  • December 2015: fall to record low of $47/tonne, after a steady decline since deal announcement
  • September 2016: Valuation of Tata Power’s Indonesia assets falls by half; transaction yet to close

 

image
Business Standard
177 22
Business Standard

Tata Power's plan to sell Indonesian arms hits valuation hurdle

Falling coal prices bring down valuation by half

Dev Chatterjee & Sanjay Jog  |  Mumbai 

Tata Power's arm acquires 30 MW solar project in Maharashtra

Tata Power’s plan to sell stake in two of its Indonesian – Arutmin and Kaltim mines – is in jeopardy, with the valuation of the two falling by half, owing to sagging coal prices.

Global investment banking firm Jefferies has estimated that the combined valuation of Tata Power’s stake in the two firms is now down to $990 million, compared to $2 billion when the deal was signed in 2014. The cash flow from the sale of the projects was to help reduce Tata Power’s consolidated debt that touched Rs 40,120 crore as of March this year.


In January 2014, had announced it would sell its stake in Arutmin back to local Bakrie Group for $500 million. In July 2014, it informed the stock exchanges it had signed an option agreement to sell five per cent stake in Kaltim mines for $250 million to Bakrie Group. It held 30 per cent stake in Kaltim mines. Both transactions have not closed till date, as fell to record lows, making buyers jittery.

Bankers said the local buyer wants to renegotiate the transaction, as the deal is uneconomical for the buyer. The global have softened from $82 a tonne to $59 a tonne and, reflecting the trend, the Indonesian also fell from $64 a tonne to $47 a tonne since 2014. Indonesian coal usually sells for 20-25 per cent discount to global prices due to its lower quality. “Although this drop in prices has helped to reduce losses at its Mundra power project, which is fuelled by imported coal, the falling prices have hit the valuation of its Indonesian thermal hard,” said a banker.

When contacted, a statement said the valuation of Arutmin as on agreement date still holds good, despite any subsequent market valuation changes and, hence, has no relevance to the transaction already done for Arutmin.

Since the transaction was announced, stock has seen a steady decline. The stock fell from its peak of Rs 114 a share in July 2014 to Rs 76 apiece as on Friday.

The company is now aspiring to become one of India’s biggest solar power producers, having taken over Welspun Group’s renewable power portfolio at an enterprise valuation of Rs 9,200 crore. Early this week, it signed a deal with ICICI Venture to set up a fund with a corpus of $850 million to take over distressed power assets in India.

Tata Power's plan to sell Indonesian arms hits valuation hurdle
is not the only company that has seen its calculations over overseas coal mines go awry. The Essar Group, Group, Lanco, and GVK are also facing the brunt of falling coal prices.  Most of the coal mines of top Indian are either making losses or are on the verge of closure. Essar Group’s $600-million investment in Trinity Coal Corp in the US turned bad, as the company went into Chapter 11 in 2013.

Named after the US bankruptcy code 11, Chapter 11 is filed by that require time to restructure their debts, and it gives the debtor a fresh start, subject to the debtor’s fulfilment of his obligations under the plan of reorganisation.

The investments by GVK Group ($1.26 billion in Hancock), Lanco ($600 million in Griffin) and Enterprises ($1 billion) in the Australian coal sector in 2011 remain in the red.

RAKE OVER OLD COALS
  • Jan 31, 2014: sells stake in Arutmin Coal for $500 mn to Bakrie Group
  • July 4, 2014: signs an option deal to sell 5% stake in Kaltim Prima Coal for around $250 mn
  • December 2015: fall to record low of $47/tonne, after a steady decline since deal announcement
  • September 2016: Valuation of Tata Power’s Indonesia assets falls by half; transaction yet to close

 

RECOMMENDED FOR YOU

Tata Power's plan to sell Indonesian arms hits valuation hurdle

Falling coal prices bring down valuation by half

Falling coal prices bring down valuation by half
Tata Power’s plan to sell stake in two of its Indonesian – Arutmin and Kaltim mines – is in jeopardy, with the valuation of the two falling by half, owing to sagging coal prices.

Global investment banking firm Jefferies has estimated that the combined valuation of Tata Power’s stake in the two firms is now down to $990 million, compared to $2 billion when the deal was signed in 2014. The cash flow from the sale of the projects was to help reduce Tata Power’s consolidated debt that touched Rs 40,120 crore as of March this year.

In January 2014, had announced it would sell its stake in Arutmin back to local Bakrie Group for $500 million. In July 2014, it informed the stock exchanges it had signed an option agreement to sell five per cent stake in Kaltim mines for $250 million to Bakrie Group. It held 30 per cent stake in Kaltim mines. Both transactions have not closed till date, as fell to record lows, making buyers jittery.

Bankers said the local buyer wants to renegotiate the transaction, as the deal is uneconomical for the buyer. The global have softened from $82 a tonne to $59 a tonne and, reflecting the trend, the Indonesian also fell from $64 a tonne to $47 a tonne since 2014. Indonesian coal usually sells for 20-25 per cent discount to global prices due to its lower quality. “Although this drop in prices has helped to reduce losses at its Mundra power project, which is fuelled by imported coal, the falling prices have hit the valuation of its Indonesian thermal hard,” said a banker.

When contacted, a statement said the valuation of Arutmin as on agreement date still holds good, despite any subsequent market valuation changes and, hence, has no relevance to the transaction already done for Arutmin.

Since the transaction was announced, stock has seen a steady decline. The stock fell from its peak of Rs 114 a share in July 2014 to Rs 76 apiece as on Friday.

The company is now aspiring to become one of India’s biggest solar power producers, having taken over Welspun Group’s renewable power portfolio at an enterprise valuation of Rs 9,200 crore. Early this week, it signed a deal with ICICI Venture to set up a fund with a corpus of $850 million to take over distressed power assets in India.

Tata Power's plan to sell Indonesian arms hits valuation hurdle
is not the only company that has seen its calculations over overseas coal mines go awry. The Essar Group, Group, Lanco, and GVK are also facing the brunt of falling coal prices.  Most of the coal mines of top Indian are either making losses or are on the verge of closure. Essar Group’s $600-million investment in Trinity Coal Corp in the US turned bad, as the company went into Chapter 11 in 2013.

Named after the US bankruptcy code 11, Chapter 11 is filed by that require time to restructure their debts, and it gives the debtor a fresh start, subject to the debtor’s fulfilment of his obligations under the plan of reorganisation.

The investments by GVK Group ($1.26 billion in Hancock), Lanco ($600 million in Griffin) and Enterprises ($1 billion) in the Australian coal sector in 2011 remain in the red.

RAKE OVER OLD COALS
  • Jan 31, 2014: sells stake in Arutmin Coal for $500 mn to Bakrie Group
  • July 4, 2014: signs an option deal to sell 5% stake in Kaltim Prima Coal for around $250 mn
  • December 2015: fall to record low of $47/tonne, after a steady decline since deal announcement
  • September 2016: Valuation of Tata Power’s Indonesia assets falls by half; transaction yet to close

 
image
Business Standard
177 22

Upgrade To Premium Services

Welcome User

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

  • Access Exclusive content - articles, features & opinion pieces
  • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
  • Access to 17 plus years of content archives
  • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
  • End of day news alerts on 5 companies (via email)
  • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
 

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard