Date | Aug 18, 2015: Debt-laden Jindal Steel and Power Ltd (JSPL) is looking to sell a controlling interest in its Botswana coal mine in Africa and a mine under Australian subsidiary Wollongong Coal Ltd as it looks to reduce debt and not commit further investments in “development stage” assets, a company spokesperson said.
“The overseas assets where the divestment is envisaged are primarily the development stage assets which will require substantial further capex and the company is not committing any further capex,” said a JSPL spokesperson in an email response to a query.
The company would raise about $300 million in the next two quarters by selling stakes in its overseas mines at a time when uncertainties in both iron ore and coal prices hurt its profitability, analysts estimate.
The $300 million amount would include $46 million in a settlement with the government of Bolivia for its assets there and $70 million for sale of an aircraft, wrote Barclays analyst Chirag Shah in his report.
Despite stress on commodities, the company is progressing well in efforts to divest the identified assets at a fair valuation, said the spokesperson.
The Naveen Jindal-led integrated steel producer and power company, which had debt of over Rs.44,000 crore as of 30 June, has since last year evaluated options including selling its mines in Africa and Australia, listing its subsidiary in Oman, and listing its power business in India to reduce debt.
Finding buyers for its overseas assets in a market that has seen global power producers face severe financial constraints will be a challenge for the company, analysts said.
JSPL, which last week reported its third straight quarterly loss, operates a 3 million tonne per annum (MTPA) coal-based sponge iron plant. It is faced with a lack of captive coal as its mines were deallocated from 31 March, forcing it to buy external coal at higher prices. Two-thirds of the company’s 3,400 megawatts (MW) power capacity is either idle or running at very low plant load factor (PLF).
Sale of non-core assets and listing of subsidiaries are few of the options which “the company is vigorously pursuing to reduce debt in FY16”, JSPL said in a statement last week without giving further details.
“They have been trying to sell these (overseas assets) for the past six to eight months. With more and more news of slowdown coming in from China, the sale call gets tough,” said one analyst, asking not to be named as he is not authorised to speak with media.
“While it is good that JSPL has initiated the process to deleverage, given that commodity prices are at a multi-year low and coal producers under tremendous stress, it will be quite a challenge to sell these assets,” said a second analyst, also requesting not to be identified.
This month, the second largest US coal producer Alpha Natural Resources Inc. filed for bankruptcy protection. At least four other US coal producers, including Walter Energy Inc. and Patriot Coal Corp., have filed for chapter 11 bankruptcy protection in the past year alone.
Global thermal coal prices are at a five-year low amid a glut of the fuel and slowing demand from China, the world’s biggest buyer; Australia’s Newcastle coal, which is an Asian benchmark, has slumped to about $60 a tonne from as much as $136.30 in early 2011, Bloomberg reported last week.
At $56.05 CIF (cost, insurance and freight) ARA coal prices touched an all-time low on Tuesday. They had fallen 21% year to date.
(Source: http://www.livemint.com/)