GVK chasing banks to fund Hancock buy

After closing the much-hyped Hancock coal mines deal, infrastructure major GVK group is now chasing the banks to raise the debt required to fund the development of the asset. Though the group had tied up with a group of Indian banks to meet the fund requirements for the initial investment cost of about $1.26 billion, it is now tapping the overseas banks to fill the much larger debt bucket. The fresh debt required for the asset development is estimated to be at about $4.2 billion.

The total cost of the asset development has been pegged at about $6-7 billion. The Hancock mines would be developed with a debt and equity combination in the ratio of 70:30.

“We will tap Australian banks for funds and we will tap international banks. About Indian banks, I really don’t know if they would like to take non-recourse finance risks in a country which is other than India. I think possibly, they will shy away a little bit, but European and Australian banks (for project finance) are the targets as far as debt is concerned,” Isaac George, GVK group’s chief financial officer, said on the sidelines of a CII seminar on infrastructure.

GVK group’s GVK Coal, a subsidiary of GVK Natural Resources recently concluded a deal with Hancock mines in Australia to acquire the coal assets and develop them further as part of its strategy to secure fuel supplies to its own coal-based power projects in India. The company would also sell the coal mined in the assets to its other overseas clients.

The group is also likely to dilute the equity of GVK Coal to raise further funds required for developing the asset. The dilution is aimed at raising about $1 billion. According to George, an Indonesian firm is in talks for participating in the dilution exercise.

“But we have not taken a call because we have too many options with us at this moment. So we will evaluate this. I just want this transaction deal to be closed. After that we will have ample time of 18 months for financial closure,” he said.

The group is also likely to borrow an additional $1.8 billion towards the equity portion of the project finance in the next three years.

However, George has refused to name the Indian banks that have already funded the initial capital requirements. “I can only say that the Indian banks have funded it. I cannot name them. They were very particular that their names should not come out. There are four big Indian banks that had actually funded this,” he said.

The GVK group would also develop related logistics infrastructure in Australia.

The deal includes acquisition of up to 79% shareholding in the Alpha (Tad’s Corner) and Alpha West (Paul’sCorner) Coal Projects, located in the Galilee Basin in Queensland.