GMR Energy to acquire stake in GEMS

GMR Energy to Acquire 30% Stake in GEMS

Off-take deal with Indonesian company is valued at $450-550 million

GMR Energy, a subsidiary of GMR Infrastructure, has entered into an agreement to acquire 30% stake in T Golden Energy Mines Tbk (GEMS), a Sinar Mas Group company in Indonesia. The deal is valued at $450-550 million.

The stake buy will help GMR purchase coal over the next 25 years, with the annual off-take quantity steadily increasing to 10 million tonnes over the coming years. GEMS has reserves of over 860 million tonne and coal resources of 1.9 billion tonne, GMR said.

An off-take is an agreement between a producer of a resource and a buyer of a resource to purchase or sell portions of the producer's future production. It is negotiated prior to the construction of a facility, such as a mine, in order to secure a market for the future output of the facility “It will provide fuel security for our power plants under construction and support further capacity addition and trading,” BVN Rao, business chairman, GMR Energy, said.

The acquisition will be funded through a combination of debt and internal accruals made through an offshore special purpose vehicle (SPV) in Singapore. This transaction is subject to the fulfilment of several conditions and is expected to close in calendar 2011, the company said.

GMR plans to set up power plants generating 12,000 MW capacities in 5-6 years. Of this, 65% will be coal based. The Bangalore-based company will require 40 MT of the fuel for the same.

GMR Energy has 17 power plants of which four are operational and 13 are under various stages of implementation.

“The Off take agreement will give GMR Enegergy access to the required quality of coal from one of the lowest cost producers in Indonesia,” Raaj Kumar, CEO GMR Energy, said GEMS, a subsidiary of PT Dian Swastatika Sentosa (DSS), owns four producing and six non-producing thermal coal concessions in Indonesia. DSS is focused on power & steam generation, coal mining, trading and telecommunication infrastructure development.

Over the past three to four years several Indian companies have been scouting for coal mines across Australia, Indonesia and Africa to ensure consistent supply of fuel for their energy businesses.

Competitor GVK Power and Infrastructure is also in talks to buy coal mines in Australia from Hancock in a deal estimated at A$8bn this September. Early this year, Lanco Infratech paid A$740 million to acquire Griffin coal assets in Australia.

Adani Enterprises too acquired coal assets from Linc Energy for A$2.72bn last August and JSW Steel invested $200 million to acquire nine coking coal mines in West Virginia, US. Over half of India’s current power capacity estimated at 169,749 megawatts is generated through coalbased thermal power plants. India could face a coal shortage of almost 50m tonnes by the end of March 2011, according to Indian government data.

Black Diamond

The stake buy will help GMR purchase coal over the next 25 years

GEMS has reserves of over 860 MT and coal resources of 1.9 billion tone

Acquisition will be funded through a combination of debt and internal accruals

GMR plans to set up power plants generating 12,000 MW capacities in 5-6 years

source: ET 12092011