‘We have kept Rs 6,000 crore for foreign buys this year’

The world’s largest coal miner, Coal India Ltd (CIL) is all geared up to list the biggest IPO till date and plans to reduce its manpower and save $ 555 million in the next decade. The man who is leading the front, Partha Bhattacharya, chairman, CIL, who recently received the CII award for outstanding contribution for 2009-10 from Nandan Nilekeni, spoke to DNA about its IPO and future plans. Excerpts:

Which bankers have got the mandate for CIL’s IPO? How were they selected?
I cannot name the bankers, because it is yet to be made public. They have been selected by the department of disinvestment. We floated a tender and 70% weightage was given to technical parameters. Based on these, eleven of the twenty were selected to open the price bid. After that, as per combined yardsticks, six of them have been selected. It has to be approved by the government, along with the proposal for the disinvestment, and then the process starts.

How much government stake will be diluted? How much will you raise?
10% of the government’s stake will be sold. Value depends on the price. The final decision on price will be taken by the group of ministers. Very broadly speaking, the kind of valuations being talked about by the book running lead managers, the company valuation is about $40 billion. So 10% should be around $4 billion. 

What is the timeline for the issue?
Once we appoint the lead managers, the next thing they have to do is prepare the draft red herring prospectus. They have to visit all the subsidiaries and access the databases. We propose to file the draft prospectus by mid-next month, and the final prospectus by July. So, we should be able to hit the markets in the first week of August. Everything depends on government approval.

What kind of response do you expect?
The outlook for Coal India is very good. On a provisional basis, our profit after tax stands at Rs 8,312 crore. The figures are likely to be revised upwards. There are several upsides that are unique to us. Like, we sell our coal distinctively cheaper, because we do not wash our coal. Three years ago, we adopted a scheme, to head towards washed coal, which is under implementation. With this scheme in place, 50% of the coal we sell will be in washed form.

Washed coal is comparable to imported coal. So we see a situation wherein prices will converge with the international prices. That is a major upside. Also, the demand will remain unconstrained for a foreseeable future. We can sell whatever we produce, which doesn’t happen with other companies.

How much do you plan to invest in washeries? What are the capex plans post issue?
We are coming up with 20 washeries with a total capacity of 111 million tonne at around Rs 3,500 crore. The normal investments will go up to Rs 3,800 crore compared with Rs 2,800 crore in the last financial year. That is for both, additional and replacement equipment. In addition, we will have capital expenditure for overseas acquisitions, which we are expecting, so we have kept a provision of Rs 6,000 crore for 2010-11. 

So are you looking at options beyond Peabody?
Yes. Right now five proposals are under due diligence from three companies. If all the proposals materialise, it means an investment of about $1.7 billion in acquisitions in the next two to three years. It will give us access to 280 million tonne coal over a ten year period. For foreign acquisitions, we have set aside Rs 6,000 crore this year; we will be funding it through internal generation. There will be no borrowings for this.

About the Mozambique and Indonesian mines, have you  already started importing? When do you plan to bring coal to India?
We are yet to start. We have just got the clearance from out-end users, NTPC being one of them. So, we are now setting up the whole process, trying to tie up with the ports.

When do you plan to seal the Peabody deal?
We can’t put a timeline to that. It depends on the outcome of the due diligence process. The bankers and technical consultants have been appointed and we think in two three months, we will be able to answer that question.