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The Hancock deal structure. GVK Coal Developers (GVKCD), a GVK
group company (and step down subsidiary of GVKNRPL), has stated it
plans to acquire coal resources of ~7.9bn MT (as per JORC, 5800-
6000Kcal/kg) from Hancock Prospecting, in Galilee Basin, Queensland,
Australia. GVK Coal Infrastructure, a step down subsidiary of GVKNRPL
will have 100% ownership of (a) the proposed 495km rail project
connecting to Abbot Point, and (b) the proposed port expansion project (to
60MTPA) at Abbot Point. The listed GVKPIL will own 10% of GVKCD,
with an option to raise its stake to 49%. They will have an option to take a
‘lead role’ in GVK Coal Infra Pte Ltd (which owns the rail and port
project), on mutually agreed terms with GVKNRPL. GVKPIL will also
have an option to enter into LT coal purchase contracts of up to 20MTPA.
Please see figure on deal structure (Figure 1).
Deal funding: The cost of acquisition is around US$1.26bn, payable in a
phased manner to the Hancock Group with US$500mn (tied up, 3month
Libor+500bps) payable at Closing (~end-Sep-11). Of the balance amounts,
US$200mn will be paid one year from Closing and US$560mn will be paid
on financial close for the project (anticipated to be in 2012) but in any event,
no later than three years from Closing. GVKPIL is to provide a Corporate
Guarantee for 49% of the outstanding facility amount and pledge shares of
its energy and transportation subsidiaries.
Risks for GVKPIL: In a conference call held on Saturday, management
clarified that GVKPIL’s liability is limited to their equity exposure in
GVKCD, i.e. 10%. The investment by GVKPIL does not obligate it to
commit equity for development of assets in future, which could have
resulted in dilution in the listed company. The Corporate Guarantee to the
extent of 49% provided by GVKPIL is a security against acquisition lending
taken at group level. With GVKP IN market cap of ~US$575mn, the
guarantee is less than 1x (US$1.26bn*0.49=US$617mn). GVKPIL will have
to bear a quarterly interest obligation of just US$0.7mn initially
(=US$500mn payment via debt at closing*5.5% interest rate*10% GVKP’s
share*1/4 for each quarter).
A good deal, we believe, provided the Promoter 'assertion' comes true:
Mr. GV Sanjay Reddy, Vice Chairman, asserted that there is a significant
amount of interest from financial investors, coal traders, IPPs and
infrastructure companies to pick up a minority stake in the coal/rail and port
development projects. As per management, Phase-I for development of
30MTPA production capacity at Alpha (capex of ~US$5bn), and rail + port
infrastructure (~US$5bn) will require total capex of US$10bn. The
Promoter ‘assertion’ is that they will be able to raise at least US$1bn
over the next 3-6 months from interested parties in GVKCD.
BOTTOMLINE: Subject to promoter’s ability to raise equity in the coal
projects to part fund the acquisition and kick start development, we see the
overall deal in a positive light for GVK Power and Infrastructure.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Hancock deal structure. GVK Coal Developers (GVKCD), a GVK
group company (and step down subsidiary of GVKNRPL), has stated it
plans to acquire coal resources of ~7.9bn MT (as per JORC, 5800-
6000Kcal/kg) from Hancock Prospecting, in Galilee Basin, Queensland,
Australia. GVK Coal Infrastructure, a step down subsidiary of GVKNRPL
will have 100% ownership of (a) the proposed 495km rail project
connecting to Abbot Point, and (b) the proposed port expansion project (to
60MTPA) at Abbot Point. The listed GVKPIL will own 10% of GVKCD,
with an option to raise its stake to 49%. They will have an option to take a
‘lead role’ in GVK Coal Infra Pte Ltd (which owns the rail and port
project), on mutually agreed terms with GVKNRPL. GVKPIL will also
have an option to enter into LT coal purchase contracts of up to 20MTPA.
Please see figure on deal structure (Figure 1).
Deal funding: The cost of acquisition is around US$1.26bn, payable in a
phased manner to the Hancock Group with US$500mn (tied up, 3month
Libor+500bps) payable at Closing (~end-Sep-11). Of the balance amounts,
US$200mn will be paid one year from Closing and US$560mn will be paid
on financial close for the project (anticipated to be in 2012) but in any event,
no later than three years from Closing. GVKPIL is to provide a Corporate
Guarantee for 49% of the outstanding facility amount and pledge shares of
its energy and transportation subsidiaries.
Risks for GVKPIL: In a conference call held on Saturday, management
clarified that GVKPIL’s liability is limited to their equity exposure in
GVKCD, i.e. 10%. The investment by GVKPIL does not obligate it to
commit equity for development of assets in future, which could have
resulted in dilution in the listed company. The Corporate Guarantee to the
extent of 49% provided by GVKPIL is a security against acquisition lending
taken at group level. With GVKP IN market cap of ~US$575mn, the
guarantee is less than 1x (US$1.26bn*0.49=US$617mn). GVKPIL will have
to bear a quarterly interest obligation of just US$0.7mn initially
(=US$500mn payment via debt at closing*5.5% interest rate*10% GVKP’s
share*1/4 for each quarter).
A good deal, we believe, provided the Promoter 'assertion' comes true:
Mr. GV Sanjay Reddy, Vice Chairman, asserted that there is a significant
amount of interest from financial investors, coal traders, IPPs and
infrastructure companies to pick up a minority stake in the coal/rail and port
development projects. As per management, Phase-I for development of
30MTPA production capacity at Alpha (capex of ~US$5bn), and rail + port
infrastructure (~US$5bn) will require total capex of US$10bn. The
Promoter ‘assertion’ is that they will be able to raise at least US$1bn
over the next 3-6 months from interested parties in GVKCD.
BOTTOMLINE: Subject to promoter’s ability to raise equity in the coal
projects to part fund the acquisition and kick start development, we see the
overall deal in a positive light for GVK Power and Infrastructure.
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