Tata Power acquires 30% stake in two coal companies owned by PT Bumi Resources, Indonesia

Tata Power Company Ltd on March 30, 2007, has announced that it has signed definitive agreements to purchase 30% equity stakes (the "Purchase") in two major Indonesian thermal coal producers, PT Kaltim Prima Coal ("KPC") and PT Arutmin Indonesia ("Arutmin") (together the "Coal Companies"), and a related trading company owned by PT Bumi Resources Tbk ("Bumi"). As part of the Purchase, the Company has signed an Offtake Agreement with KPC which entitles it to purchase about 10 million tonnes of coal per annum.

This Purchase supports the Company’s upcoming power projects on the West Coast of India comprising 7,000 MW to be developed over the next 5 years. These projects will require approximately 21 million tonnes of imported coal which the Company intends to secure through a combination of purchasing equity stakes in coal mines as well as entering offtake contracts.

The Coal Companies are together among the top three largest exporting thermal coal mines in the world. They have excellent coal export infrastructure and are strategically well placed to act as a source of supply for increasing regions demand. Together, KPC and Arutmin produced approximately 53.5 MT of coal in 2006 with over 95% sold into the export market Fast growing regional demand for thermal coal coupled with supply constraints in certain exporting countries has led to higher coal prices. The Coal Companies are world class assets and have enjoyed robust financial performance recently given rising production volumes and the increases in coal prices.

The Company will be paying a consideration of US$ 1.1 billion for this Purchase prior to working capital and other adjustments. The acquisition will be made through an offshore Special Purpose Vehicle (SPV) to be formed. Funding will be done through a combination of debt in the SPV and internal accruals and borrowing from the Company.

Speaking on the occasion, Mr. Prasad R Menon, Managing Director, of the Company said "We are happy to have acquired this stake in KPC and Arutmin-coal mines of Bumi Resources. This move not only secures our fuel requirements in light of the aggressive growth plans charted out by the company but also opens up opportunities for Tata Power to own and operate a range of world class, competitive and profitable electricity and energy businesses in India and overseas. The acquisition specifically addresses fuel requirements for Mundra UMPP, Trombay and the coastal power project in Maharashtra, and is complementary and supports the assumptions made in the bid for Mundra UMPP".

Macquarie acted as exclusive adviser to the Company in relation to the Purchase.

Source : Equity Bulls

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