Adani may divest 50% stake in Australia mining, rail projects

The Ahmedabad-based Adanis are planning to sell half their stake in projects they took over in 2011 to develop an Australian coal mine and lay a rail line to finance a part of the $8-9 billion investment needed.

The Adanis were in negotiations with China Rail Corporation and another Chinese company but no deal had been finalised, a high-ranking executive in the Adani group said.

The Carmichael mine, in which the Adanis are planning to shed half their stake, needs an investment of around $5 billion. Another $2.5 billion must be spent on a 400-km rail line to cart the coal to a port, which in turn will need yet another $1 billion to build.

The investments will be backed by Chinese banks, contracts to Chinese construction companies, and coal sales to the new investors.

AMBITIOUS PLANS

• The Carmichael mine, in which the Adanis are planning to shed half their stake, needs investment of around $5 billion
• Another $2.5 billion must be spent on a 400-km rail line to cart the coal to a port, which in turn will need $1 billion to build
• The $8-9 billion project is ambitious for the Adanis. When ready, it will be the biggest coal mine development in Australia. The project is expected to start exporting coal from 2017

The Adani group is not alone in seeking investment partners. Infrastructure major GVK is also looking to sell a minority stake in its Australian coal mining project, in which it invested $1.26 billion in 2011, but no deal has materialised. Both Adani and GVK plan to sell the coal to power stations in India and to neighbouring countries.

The $8-9 billion Australian project is ambitious for the Adanis. When ready, it will be the biggest coal mine development in Australia. The project is expected to start exporting coal from 2017.

Last year, the Bombay Stock Exchange-listed Adani Ports transferred the port project to the promoters at a book value of $211 million after analysts raised objections over the company's $2 billion debt burden. The Australian port project is now housed in an offshore company owned by the Adanis in Singapore, while the mine and rail line are being set up by subsidiaries of the Bombay Stock Exchange-listed Adani Enterprises.

Tim Buckley, director of Energy Finance Studies, Australasia, said it would be feasible for Adani to structure the transaction by saying a new 50 per cent equity partner was buying into the mine and/or rail/port infrastructure project through a relatively small upfront equity payment. GVK had proposed a similar transaction with Aurizon Rail in March 2013, but this had gone very quiet of late, he added.

Buckley said China was a major investor in global resources, and consumed half the world's coal output. Chinese companies may be interested in developing one of the world's biggest thermal coal mines.

"China's utilities and banks have the equity and debt capacity to fund a project of this size and a few other banks globally have this capacity. China was involved in Clive Palmer's China First coal and rail project in the Galilee over 2009-2011, but the relationship seems to be on the backburner, probably given Clive Palmer's legal fallout with CITIC," he added.

GVK and the Adanis are the only two left as other global players got out of Australian coal mining. Last week, the world's fourth largest miner by market value, Anglo American Plc, announced it had pulled out of Abbot Point in Queensland. Anglo American's announcement followed similar decisions by BHP Billiton and Rio Tinto.

Bankers said the recent fall in thermal coal prices to a four-year low was the reason energy companies were losing interest in Australian coal mining.