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SBI Chief says Adani's Carmichael project viable

Bank's board to take final decision on $1-billion loan

BS Reporter  |  New Delhi 

Arundhati Bhattacharya
Arundhati Bhattacharya

State Bank of India (SBI) Chairperson Arundhati Bhattacharya on Thursday defended the country’s largest lender’s plan to lend Adani Group $1 billion for the Carmichael coal project in Queensland, Australia. She added the bank’s board was yet to finalise the loan’s disbursement.

Bhattacharya had signed a memorandum of understanding (MoU) for the loan with the Queensland government on the sidelines of Prime Minister Narendra Modi’s visit to Australia for a summit of the heads of G20 member countries.

“This is a memorandum of understanding (MoU); this is not a loan sanction. It will go through proper due diligence, both on the credit side, as well as on the viability side. All of that will be done. The board has to take a call; only then will the money be given,” Bhattacharya told reporters on the sidelines of Minister Arun Jaitley’s meeting with the chiefs of state-owned here.

On November 17, the A$7.2-billion coal project was cleared by the Queensland government. The Queensland administration said it would help fund a 388-km railway line connecting the coal mine to Abbot Point port near the Great Barrier Reef.

The port and the coal mine have come under criticism because of environmental concerns, with entities such as Greenpeace moving court against this in Australia. Also, the viability and financing of the project have been questioned.

Bhattacharya, however, said, “We have checked with the Queensland government. They have clarified there are no environmental issues. Greenpeace will make a problem anywhere. The threat to the Great Barrier Reef is not from Abbott Point port,” she said. “The government has clearly said there is much more threat to the Great Barrier Reef from farm run-offs and starfish attacks than from this port.”

She also defended the project’s viability and financial benefits, adding shipping coal to India from the Carmichael mine was cheaper than transporting it from any other resource-rich nation. “Over there, coal is available at $42 FoB (free on board), whereas even today, the minimum price of coal around the world is $62. So, there is no viability issue. And, the quality of coal there is excellent; it is much better than the coal we are getting locally at this point. So, it pollutes much less.”

Free on board is a term of sale under which the price invoiced or quoted by a seller includes all charges up to placing the goods on board a ship at the port of departure, specified by the buyer.

Asked about SBI’s exposure to the project in case the bank’s board approved the loan, Bhattacharya said the net exposure would be about $200 million, as there were some repayments from the company.

Critics of the project have said because of the risks involved, such as HSBC, Deutsche Bank, and Royal Bank of Scotland have stayed away from the project. The Press Trust of India quoted a senior official who refuted news about other not being involved in the project. “There are a couple of international banks that have already funded our acquisition of mines in Australia. I don’t think it is for public consumption for us to tell which banks are considering the project in different stages of approval,” the news agency quoted the official as saying.

As reported by Business Standard earlier, Adani Enterprises had consolidated debt of about Rs 72,000 crore at the end of the September quarter, a debt-to-equity ratio of 2.94:1. Adani Mining, the Australian subsidiary, had debt of $1 billion, negative shareholder funds, zero revenue and high cash burn. “The viability, the credit limit of the company, etc, all that will be checked. Only then will my board take a call,” Bhattacharya said.

Recently, Power Minister Piyush Goyal had said India would be able to stop importing thermal coal in the next three years (two-thirds of the Carmichael coal is meant for India).

Bhattacharya, however, sounded confident the demand for coal would only rise as manufacturing picked up and power demand, especially in cities, kept rising.

  • Australian $7.2-billion coal mine project located in Galilee Basin, Queensland
  • 388-km rail line from Carmichael coal project to the port of Abbot Point near the Great Barrier Reef
  • Project life: 60 years
  • Adani is seeking Australian $3.2 billion for the rail project from banks and South Korean lenders
  • Through this project, Adani hopes to provide 10,000 jobs and $22 billion in taxes and royalties to Queensland
  • Adani started formal environment assessment of the Carmichael coal mine and rail project in 2010
  • The three proposed mega-projects in the Galilee Basin are Adani's Carmichael mine, GVK's Alpha mine and Clive Palmer's Waratah coal mine
  • Adani is likely to take final investment decision by late 2015

First Published: Fri, November 21 2014. 00:50 IST