Coal India reverts to acquisition mode

After some hibernation, Coal India Ltd is on the prowl for overseas mining assets.

As a first step, the company is expected to seek this week expressions of interest from tax and accounting consultants to advise it in selection of assets and the bidding process.

Expecting to vet a large number of proposals, Coal India intends to shortlist a few before finalising on one or two consultants.
Coal India urgently needs to harness professional help from outside as it prepares to bid for stakes owned by local governments in mines located in the Limpopo province of South Africa possibly through a joint venture.

The proposal is likely to be considered by Coal India’s board this month-end.

The joint venture company, where Coal India is likely to hold a majority stake is likely to place its bids by March, an official of Coal India said.

With almost nil growth in output, Coal India has been on the lookout for mines abroad.

Despite adequate cash reserve, government control and oversight of bodies such as the Vigilance Commission and the Comptroller and Auditor General prevented it from making any aggressive bids for such assets and companies in competing with private sector rivals.

These factors explain why Coal India has not been successful so far in buying any major coal assets overseas except two blocks in Mozambique.

Recognising such constraints, the government in October allowed Coal India to acquire foreign unlisted assets on the condition that such investments must generate an internal rate of return (IRR) of not less than 12%. The condition can be waived only on a case-to-case basis.

While the finance ministry is OK with Coal India acquiring listed entities, it’s not keen on unlisted ones due to concerns over transparency.

But going for even listed assets posed a problem earlier - such as in the case of Peabody Energy of the US, which insisted that coal mines it divests should be first be hived off as an unlisted arm.