As the world moves towards cleaner fuels, the world's largest private-sector coal company has filed for bankruptcy. The US-based Peabody Energy, which, till about five years ago, was a $20-billion firm, filed for Chapter 11 Bankruptcy in the US.
A sharp fall in coal prices left the company unable to service a recent debt-fuelled expansion into Australia. The company listed both assets and liabilities in the range of $10 billion to $50 billion, according to a court filing.
Globally, nearly three times more money was invested in renewables in 2015 than a decade ago. According to SNL Energy, at least 49 petitions for bankruptcies have been filed by coal companies since 2012. Coal India, the world's largest coal miner, in 2010 was looking to buy over 10 per cent in Peabody's Australian asset. It was also looking at a long-term offtake agreement with the company. Peabody had offered the stake in one of its companies. According to Tim Buckley, director of energy finance studies, Australia from the Institute for Energy Economics and Financial Analysis (IEEFA), "Peabody's bankruptcy stems directly from the company's top-of-the-cycle, multibillion-dollar debt-funded acquisitions, its inability to properly gauge energy markets and its failure to see the coming over-supply in the seaborne coal trade."
Peabody's debt troubles date back to its $5.1 billion leveraged buyout of Australia's Macarthur in 2011. While this might send worrying signals across the coal industry, Tom Sanzillo, director of finance, IEEFA, said the coal industry is not dead, but faces a time in which it must innovate in ways that it has not done before. "That means smaller markets and fewer mines."
According to Ian Dunlop, former chair, Australian Coal Association, "The demise of Peabody Energy highlights the fundamental structural change, which is rapidly reshaping world energy markets as human-induced climate change bites. That change will only accelerate given the alarming global average temperature increase just announced for February 2016, which indicates an increase of just under 2°C relative to the true pre-industrial level around 1750. An increase which our leaders assured us was not supposed to happen until end-century."
Dunlop said Peabody took an exceptionally irresponsible position on climate change. First, by denying its very existence, using large amounts of shareholder funds to discredit the science and doing everything possible to prevent the introduction of sensible climate policy.
Second, by misrepresenting to shareholders the risks of climate change; in part by misleading the use of information from organisations such as the IEA in support of argument that coal is essential to the alleviation of poverty in the developing world, whereas the evidence clearly indicates it is now creating poverty."
TOUGH TIMES
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The company listed both assets and liabilities in the range of $10 billion to $50 billion
