gotta be good for bnd

GVK Power set to buy two Australian coal mines for $3.4 billion

Nikhil Inamdar, June 13, 2011, (Mumbai)

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Indian billionaire GV Krishna Reddy-controlled GVK Power & Infrastructure Ltd is inching closer to its buyout of Australian mining company Hancock's flagship assets.

NDTV learnt that the company will shell out a whopping $3.4 billion for two mines of the company in the Galilee basin in Australia. The price is higher than the widely expected price tag of $2bn.

Hyderabad-based GVK Power has been eyeing Hanckok's coal assets in Australia. Kevin's Corner & Alpha Coal lie in the much sought after Galilee basin where companies like Adani & Lanco recently acquired assets.

Sources have told NDTV that the deal in which GVK would acquire 100% stake in Hancock's Kevin's Corner and Alpha Coal Project assets could be concluded in the next week or two.

ICICI Bank is syndicating a $1.2-billion loan for GVK Power and the company has managed to tie up the funding at an interest cost of 10%.

While these are good-quality flagship coal mines owned by Hanckok, analysts are worried that valuations are overstretched and GVK may overleverage itself with this buyout.

Analysts doubt that the deal will be a big boost for GVK Power. Jagannadham Thunuguntla, strategist at SMC Global Securities Limited said that they are spending Rs. 15,000 crore. This is not a comfortable valuation for any analyst especially considering that they are a small company.

Another concern is GVK will have to spend between $7 bn to $8 bn in developing the greenfield mines which have reserves of around 7.9 billion tonne.

The company could look at inducting a PE player, once all the clearances are in place.

The premium GVK is willing to pay for Hanckok's mines is indicative of the desperation of Indian power companies for coal assets abroad. The big question is - with so much money being splurged on these expensive buyouts - will power from these plants be economically viable?



Read more at: http://profit.ndtv.com/news/show/gvk-power-set-to-buy-two-australian-coal-mines-for-3-4-billion-159994?cp