Coal-Starved India Could Spur Acquisitions

NEW YORK (TheStreet) -- The recent Adani coal deal may just be the beginning, as severe coal shortages could compel Indian power companies to purchase coal mines or forge joint ventures with major coal exporters such as Australia, Indonesia and South Africa.

India plans to augment power generation capacity to 62,000MW by 2012 from the current 159,000MW. Although India is the world's third-largest producer of coal, domestic supplies and transportation networks are yet to keep pace with demand growth. The country will continue to rely on imports to cap the supply-demand gap, as the bulk of new power projects will be largely coal-based.

Coal India, the world's largest coal producer, planning to raise $3.2 billion this October, is also pursuing assets in Australia. In comparison to Indian coal, Australian coal has better gross calorific value, thereby producing higher electricity per a tonne of coal. Coal India is negotiating with Rio Tinto ( RTP) and Peabody Energy ( BTU) for deals in Australia.

Reliance Industries, the largest Indian company with a market capitalization of $72.1 billion, plans to invest more than $15 billion over the next decade in power transmission projects. The company will bid for three ultra-mega power projects of 4,000 MW capacities each in India. In parallel, Reliance is planning for coal mines in Australia, Indonesia and South Africa, three biggest coal exporting countries.

Tata Power, a Tata group company, is looking for a strategic stake in Indonesian and South African coal mines for supply of 6-8 million tons of coal to fuel its 2x800MW thermal power project. The company targets to acquire a stake that will assure 8-9 million tons of coal supply.

In China, utility companies are boosting coal purchases to meet the growing demand for electricity. For instance, Huaneng Power International ( HNP), China's largest power producer, generated 38% more electricity during the first half of 2010, relative to 2009.

Among the U.S. coal producers, companies with a higher share of revenues from exports will likely benefit from the Asian demand surge. Walter Energy ( WLT) and Alpha Natural Resources ( ANR) have 76% and 52% of their respective revenues from international markets, compared to 18% for Massey Energy ( MEE), 11% for Consol Energy ( CNX), and 5% for Cloud Peak Energy ( CLD).

Meanwhile, the increase in number of power plants in India will benefit U.S.-based companies such as General Electric ( GE), a leading turbine manufacturer. Adani Power - Link Energy Deal

Adani Power, a $6.4 billion company by market value listed in Mumbai, announced Tuesday the acquisition of a $455 million coal asset in Australia from Link Energy.

The Australian foreign investment review board has approved the purchase of the coal mine, based in Galilee Basin in Queensland, with reserves of 7.8 billion tonnes. The mine has a production capacity of around 50 million tonnes per annum over the next four years. Adani power, the biggest thermal coal importer of India, acquired these assets as part of the company's plans to expand capacity to 20,000MW from 13,000MW.

The company plans to acquire two new ships from South Korea to import coal and has also been commissioned to develop a coal exporting terminal in Australia. The Adani group, parent of Adani Power, aspires to leverage its integrated model of coal mining, logistics and power generation. The Adani group, headed by Gautam Adani, a university drop-out who started his career sorting diamonds in Mumbai, is India's 13th richest man with a personal fortune of more than $4.8 billion, as estimated by Forbes.

The group plans to invest $25-30 billion over the next seven years in coal mines, power generation, cement manufacturing, shipping, port construction and overseas farming. The group operates India's largest private port at Mundra, not far from the Pakistan border. The group is evaluating other acquisitions in Australia, Africa and Indonesia, and owns 20 ships for freight logistics. Currently, the company owns mines in Africa and Indonesia, and imported around 30 million tonnes of coal in the last fiscal year.

Karvy Global Services (www.karvyglobal.com), a subsidiary of the Karvy group (www.karvy.com), provides specialized research in asset classes including stocks, mutual funds and insurance to leading Wall Street firms.

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