GVK Power acquires Australia's Hancock Coal for $1.26 billion, plans to invest $10 billion more

HYDERABAD:Infrastructure major GVK Power, part of the GVK Group, on Friday said it hasagreed to acquire Australia's Hancock Coal for $1.26 billion, in one of thelargest overseas acquisitions by an Indian infrastructure entity.

GVKsaid the deal, which includes acquiring majority holding in coal resources andrailway line and port infrastructure projects of Hancock Coal, will offer theHyderabad-based company option for long term coal supply contracts for thepurchase of up to 20 million tonnes every year. This can support around 7,500megawatts of power generating capacity.

On August 26, ET had reportedthat GVK Power was close to acquiring two coal mines from Hancock Coal for about$1.3 billion.

“While this builds a strong resource business forGVK, it will also significantly enhance the value to GVKPIL shareholders as wewill now be able to increase the capacity of our coal power business with anassured in house supply of raw material,” GVK Chairman GVK Reddy said in astatement.

GVK will pay the consideration in a phased manner to theHancock Group, with $500 million upfront. About $200 million will be paid in oneyear from closing the deal and another $560 million on financial closure of theproject, which is expected next year.

The Hancock coal projectconsists of 7.9 billion tonnes reserves.

The deal comes a year afterAdani Enterprises bought Australia-based Linc Energy's coal assets for about Rs12,600 crore in the largest such transaction. In march this year, Lanco, anotherHyderabad-based infrastructure major, bought Australia's Griffin Coal for A$750million.

GVK Power, a flagship of the GVK group, and its subsidiaryGVK Energy, have been aggressively trying to secure fuel supply agreements in anenergy deficient market for their proposed power plants India. The acquisitionenables GVK Power to secure adequate fuel supplies for its powerventures.

Hancock Group chairman Georgina Hope Rinehart, one ofAustralia's richest women, will join the board of GVK Power as a non-executivedirector.

The Hyderabad-based infrastructure group said it hastied-up the funding for the acquisition with banks and the financing documentsfor funding the acquisition are being executed with the banks and thetransaction is expected to close and assets transferred in about twoweeks.

Ernst & Young acted as the financial advisor to GVK forthe acquisition. Amarchand & Mangaldas & Suresh A. Shroff & Co werethe legal advisors, while Minter Ellison Lawyers were Australian legal advisorsto GVK.

GVK estimates a total investment of $10 billion in the firstphase of developing the mines, rail line and port. However, it did not disclosedetails on funding arrangements for this investment.

The transactionwas done by GVK Coal Developers (Singapore) Pte Limited (GVKCDPL), a step downsubsidiary of GVK Natural Resources. Initially, GVK Natural Resources will hold90% and GVK Power will hold the remaining 10%. GVK Power has the option toincrease its stake up to 49%, subject to necessary approvals from the ForeignInvestment Review Board (Australia).

GVK entities have agreed toacquire a shareholding up to 79% in Alpha Corner and Alpha West Coal Projects,located in the Galilee Basin in Queensland, wherein the Hancock Group willretain the remainder of the shareholding.

GVK firms would acquire a100% shareholding in the Kevin's Corner Coal Project, located immediatelyadjacent to Alpha. Further, the entities of GVK group will also acquire a 100%shareholding in the rail and port project connecting the above coal projects tothe port of Abbot Point and Abbot Point T3 expansion project, whilst retainingsome tonnage capacity for the Hancock Group.

The infrastructureproject involves the development, ownership and operation of an integratedinfrastructure development consisting of a 495 km rail line and a 60 milliontonnes per annum port at Abbot Point. At full production, the three coalprojects are together expected to supply about 84 million tonnes per annum tothe global sea-borne coal market.

GVK said the first phase ofproduction, expected to start in 2014, envisages a total production of over 30million tonnes per annum of high quality thermal coal. The coal mines willdeliver a very high quality thermal coal with a gross calorific value (asreceived) of about 5800-6000 kcal/kg and low ash and low sulphurcontent.

Most of the coal from the project is intended for deliveryinto the Asian region as letters of intent for approximately 45 million tonnesper annum have already been signed or are in the process of finalisation withmajor utility companies in China, Japan, Korea, Taiwan and Vietnam.