Coal India faces challenges in finding merchant bankers for planned overseas acquisitions

KOLKATA (miningweekly.com) – State-miner Coal India Limited’s (CIL’s) planned investment in overseas coal assets is facing stiff speed-breakers, with global merchant bankers unwilling to take up an advisory and due diligence mandate for the so-called ‘dirty fuel’.

Last year, the miner floated a tender to appoint merchant bankers to act as financial advisers and conduct due diligence for its targeted acquisition of interests in coal blocks in Australia, Russia and Canada. However, it has been unable to conclude an agreement, against the backdrop of a large number of global merchant bankers taking a decision to disassociate with coal.

Global merchant bankers, including Goldman Sachs, Merrill Lynch and BNP Paribas J P Morgan have announced that they will withdraw from the coal sector, in line with lending financial institutions stopping financing coal projects amid pressure from environmental groups.

With global financial institutions withdrawing from financing coal projects, financial advisory firms and merchant bankers too were rapidly reducing their coal portfolio of fee-based businesses and under the circumstances, Indian coal companies would not only be squeezed from financial projects with overseas capital inflows, but would also find it difficult to secure mandate for advisory services.

The fall in the price of renewable energy, both in terms of project implementation, cost of storage and tariffs has triggered a surge in investments in this sector.

Global merchant bankers are also shying away from India, considering the likelihood that most resource majors will not participate in the auction of coal blocks in the country. With global resource majors including Rio Tinto selling its coal assets in Australia, Anglo American progressively lowering coal production targets over the coming years and Glencore not increasing coal production beyond current levels, foreign direct investment in the Indian coal sector might belie the government’s expectations.

Last year, the CIL board of directors approved the acquisition of an equity stake in high-grade coking coal assets in Australia with provision for buy-back and shipments back to India alongside acquiring exploration and production rights in Canada and Russia backed by government-to-government bilateral negotiations.

“CIL intends to avail the services of internationally reported merchant bankers, investment bankers to carry out financial due diligence and render transaction advisory services with respect to the acquisition of stakes along with off-take rights in coal assets in Australia held by a company for the purpose of arriving at an enterprise valuation of the company and framing a non-binding offer initially followed by a final and binding offer,” a CIL statement said.