RPower joins $3.5-billion race for Whitehaven Coal

The race to buy out Australian coal mining company Whitehaven Coal has reached Indian shores. According to two independent sources, Anil Dhirubhai Ambani-promoted Reliance Power (RPower) is looking to put in a bid for the Sydney-based company, listed in the Australian Securities Exchange.

The current market cap of Whitehaven Coal is $3.5 billion. The company had mandated Goldman Sachs to run a formal sell-off process, which began in October last year. The current promoters, along with other related entities of the promoter group, hold 85 per cent in the company.

One of the large shareholders in the company is US private equity firm First Reserve. However, they have officially declined to join the buyout race.

RPower is unlikely to be alone. Around 20 companies are expected to join the bidding process with strong contenders from China and Korea. A consortium of Korea Resources Corporation and Daewoo has confirmed they have put in a non-binding bid. China’s Shenhua Energy and Yanzhou Coal are also on the fray and are known to have shown interest in the company.

Investment banking sources said with Korean companies already having off-take contracts with Whitehaven, they stand to be the clear favourites. “The Koreans already have a strategic relationship compared to traders who are also expected to join the race. And, that will weigh on any seller’s mind,” said a banker involved in the transaction.

RPower may face competition from India also. Names of Adani and Tata Power as likely candidates are also doing the rounds. An Adani spokesperson however told Business Standard: “ We are continuously exploring opportunities to acquire coal assets world-over and do not comment on market speculations.”

RPower declined to comment, while a Tata Power spokesperson said: “We deny bidding for Whitehaven Coal. But the company is looking for coal assets in Indonesia, Australia and South Africa.” The last date for the bid is February 26.

However, the size of the deal and the likely competitive bidding scenario may make it tough for Indian utilities or resources companies to seriously pursue this opportunity. “For acquiring a $3.5-billion market cap company, Indian power utility companies may have to think twice. The complexion of their business will change if they buy a coal mining company of this size. Also, much of the existing coal has been contracted out. So, it becomes more of a cash flow hedge for them.”

Whitehaven has interests in coal tenements covering approximately 427 km in the Gunnedah, Werris and Ashford coal basins of New South Wales. The company also operates a coal handling and preparation plant and rail loader near Gunnedah.

It has four open-cut coal mines – Rocglen, Sunnyside, Tarrawonga and Werris Creek. Each of which produces around 1.5 million tonnes every year. The coal produced from all these mines is exported. The company’s Canyon coal mine is undergoing maintenance work and has stopped production since July 2009. Yet another coal mine, Narrabri North, was supposed to come into production in 2010.