Q&A: Isaac George, CFO, GVK Group

'We have too many options on investing partners for Hancock deal'

The GVK Group, which recently said it would acquire the assets of Hancock Coal in Australia for $1.26 billion through its Singapore subsidiary, GVK Coal Developers, is looking at options to raise the money. On the sidelines of CII’s infrastructure conference in Hyderabad, its chief financial officer, Isaac George, talks on some ideas to take the deal forward and related issues. Edited excerpts:

Was there any competition for the Hancock deal?
Yes, we had. There were a lot of international competitors from China and the US. There were Indian companies, too. We did not go overboard; we bid reasonably. Gina Rinehart (who sold the Hancock mines to GVK), was comfortable with us after doing a prudence check, on us as a group and the individuals associated with the group. Though she got better offers from others, she decided to go with us.

How soon are you planning to tie-up funds?
Funds ($1 billion) for the acquisition have already been tied-up.There are four big Indian banks which had funded this. Only project finance is remaining, which we expect to be able to do in 18 months. A lot of investors are interested, both financial and strategic, in this project. That gives us a great source of strength, that this project can easily bring in the equity required.

Who could be these strategic investors, potentially? There was talk that you are going to tie-up with an Indonesian company (according to media reports, it is Kideco, the third largest coal company there)?
These are investors based out of Australia and the US with interests in coal mining, and who will become a mine developing operator for us. Tying up with the Indonesian company is a possibility. It has expressed deep inclination to come and join us as a partner. We have not decided because we have too many options at this moment. We will evaluate this. Right now, I just want this Hancock transaction to be closed. We are going to make the payment on the 27th or 28th of this month.

What about the debt part? Are you looking at approaching Indian banks, too?
On debt, Australian banks are flush with funds. So, we will certainly tap Australian banks. Indian banks ... I really don’t know if they would like to take non-recourse finance risks in another country. European and Australian banks are our targets as far as debt is concerned.

What would be the extent of investments into the Hancock project?
The number we have in mind for Phase-I is $10 billion. There is a possibility of reducing this through value engineering. I feel this $10 billion will come down to $6-7 bn. So, technically, we need to fund $6-7 bn in Phase-I, spanning three years.

$6-7 billion is a big number. What will be the debt-equity ratio?
The $6-7 bn will be funded in a debt-equity ratio of 30:70 -– $1.8 bn in equity and $4.2 bn in debt. Apart from that, there would be borrowing of $1 bn for funding the acquisition. So, effectively, we will have to raise roughly $2.8 bn to, sort of, have our slate clean.

Will Hancock be part of GVK PIL or remain an independent company?
GVK PIL (Power & Infrastructure Ltd) gave a 49 per cent guarantee for land, tenements and approvals in Australia for this deal. However, it is not into the commodity business. So, Hancock and its total assets will be under the holding of our Singapore subsidiary, GVK Coal Developers, which will get into the commodity business. GVK PIL might do the infrastructure portion of this Australian business, if the board finally says yes to it. GVK PIL may become an interested party to Hancock's mines for purchase of the 20 million tonnes of coal required for its 7,500 Mw power projects.

How much equity dilution are you looking at in the Singapore company?
Today, we have 79 per cent equity in Hancock’s Tad’s Corner and Paul’s Corner mines, and 100 per cent in Kevin’s Corner. The idea is to dilute this in such a way that I still hold 51 per cent equity at the top, so that I will have management control. I might go a little above 51 per cent, depending on the valuation people can give me for the dilution.