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| Tata Power may face difficulties in paying debt |
| Bloomberg / New Delhi Mar 05, 2009, 00:01 IST |
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Tata Power Co, India’s biggest private electricity generator, might face difficulties in repaying $850 million debt used to buy stakes in two Indonesian mines as coal prices decline, analysts said.
A slide in thermal coal prices to the lowest in eight months may cut Tata’s dividend from PT Bumi Resources, affecting its ability to pay debt, said Shruti Mehta, Mumbai-based analyst at Finquest Securities Pvt.
Tata Power said if coal prices remain below $60-$65 a metric tonne, it “may put pressure” on loan servicing, although it expected prices to remain above this level.
“Benchmark Australian coal prices have fallen in the last few days,” said Mehta. “Indonesian coal trades at even lower prices and this may hurt Tata Power’s dividend earnings from Bumi this year and affect their debt repayment.” Mehta plans to review her “outperform” rating on Tata Power next week.
Power-station coal prices at Australia’s Newcastle port, a benchmark for Asia, last week declined 14 per cent to $65.32 a metric tonne, the lowest level since the week ended June 15, according to the global coal NEWC Index. Declining demand for coal amid the global recession has prompted producers in Australia and South Africa to curb production.
Tata Power doesn’t expect to have difficulties repaying loans as coal prices are expected to stay above $70-$72 a tonne, the company said in a statement today in response to e-mailed questions from Bloomberg News.
“Since many existing coal contracts were priced in the last 3 to 6 months, if the coal prices remain below $60-$65 for the next 6 months it may put pressure on servicing of the loans taken at our investment subsidiary level for the acquisition of interest in Indonesian coal mines,” Tata Power said. “However, experts’ views are that in the medium term coal prices will remain at $70-72 levels and not fall below that.”
Tata Power agreed to pay $1.3 billion in March 2007 to buy a 30 per cent stake in two coal mining units owned by Bumi, Asia’s third-biggest coal producer.
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