JSW Energy inks Rs1,895-cr deal for African coal

Sajjan Jindal's JSW Energy moved a step closer to securing its coal requirements, signing a definitive agreement with the management of CIC Energy on Wednesday, to buy them out and take control of the Toronto-listed company.

CIC Energy has an 'A-grade' mining-cum-power complex called the Mmamabula Energy Complex in Botswana, Africa. The field there is estimated to have 2.6 billion tonnes of high-thermal coal, mostly above 6,000 Kcal/kg of calorific value.

Within the next three to four years, it is expected that around 24 million tonnes can be extracted yearly. There is also a proposed 1,200-Mw, coal-fired power unit and a coal-to-hydrocarbons project.

The agreement between JSW Energy and CIC's management led by its chairman and CEO, serial entrepreneur Warren Newfield, says JSW will pay C$7.42/share (US$7.28) to buy a minimum 66 per cent and up to the entire stake in the company.

The total acquisition cost will come to around $418 million (Rs1,895 crore). Motilal Oswal was CIC's advisor for the deal.

JSW's offer comes at a 43 per cent premium to the market price of CIC, which was trading at C$5.2/share on the Toronto exchange at the time of going to press.

Currently, the promoters hold close to 20 per cent stake in CIC. The promoters and institutions together have close to 85 per cent. The rest is with public shareholders. CIC's promoters are expected to approach the company's board with JSW's offer within a few weeks and the deal is likely to get completed by end-February.

An open offer is expected to follow after buying the promoters' stake. Under Canadian law, the open offer can be for the controlling 50 per cent or an absolute buyout.

JSW Energy's management was unavailable for comment till the time the edition went to print. CIC Energy's management did not want to say anything.

The coal linkage will help JSW mitigate its raw material risks for its power portfolio, which relies predominantly on imported coal. JSW Energy has 995 Mw of operational generating capacity and is adding another 2,145 Mw, presently in various stages of implementation. By 2015, JSW Energy plans to have a combined installed capacity of 11,390 Mw.

Sources following the transaction said there may still be some last-minute drama, with counter-bids from at least two other parties. If these come in, they may be termed as hostile by CIC's management, as the latter have already signed a bilateral agreement.

GMR Energy, which completed a limited diligence prior to JSW and was believed to have put in a higher but staggered bid, is expected to approach the shareholders directly.

And, a Chinese company, Golden Concorde, with whom CIC had entered into a joint venture agreement, may do likewise.

GMR's bid, at $9.15/share, was higher than that of JSW's but comes with caveats, said these sources. GMR was willing to pay C$1.40 in two installments of 70 cents each, upon financial closure of the power plant and the railroad project. At that price, the total acquisition cost for GMR was likely to be $470 million.

GMR Energy's CEO, Raaj Kumar, refused to comment on the company's course of action on CIC or about any bid.

Interestingly, though CIC was looking for a strategic partner for the Bostwana mines, the interest for the assets intensified only recently, after the governments of Bostwana and neighbouring Namibia agreed to jointly develop a 1,500-km railway across the Kalahari Desert to carry 60 million tonnes of coal annually.

In return, the two governments are expected to sign committed usage agreements (use or pay contracts) with mining and power companies. Without this firm commitment, a deal was tough. Being land-locked, evacuation of coal from Bostwana has been a major handicap. With the railway, the coal can be sent to port locations in Namibia, which is on the southwest coast of Africa.