The Bumi mines include PT Kaltim Prima Coal (KPC), PT Arutmin Indonesia (Arutmin) and related companies - mines it tried to sell stakes in last year - but says now that the sale will close subsequent to customary formal approvals for both the parties. Tata, after all, needs to secure coal supplies for its upcoming power plants. The estimated sale price includes the base price of $1.1 billion, as well as closing and working capital adjustments.
Tata Power is being advised by Macquarie, while Bumi is advised by Credit Suisse.
Bumi failed to raise $3.2 billion through a share sale last year -- it had wanted to use some of the money to build plants that produce diesel from coal and crops such as palm oil. But this time around, there were at least six bidders vying for the coal companies.
"We are delighted to have purchased the stakes in KPC and Arutmin which are among the top three thermal coal mines in the world. This strategic partnership not only supports coal requirements for Tata Power's aggressive growth plans but also creates opportunities to own and participate in operating a world class energy business overseas," says Prasad Menon, managing director of Tata Power.
Tata Power is India's largest private sector power utility with an installed generation capacity of 2,300MW and is part of the well-known Tata Group, a leading industrial group in India with businesses including steel, automotive, hotels, telecommunication and power and chemicals.
Tata Power has also entered into a long-term coal off-take agreement with KPC for the supply of approximately 10 million tonnes per annum for its power plant on India's west coast as well as for future power projects, including the recently won Ultra Mega Power Project of 4,000MW at Mundra in India.
Some analysts say Tata Power is overpaying for the coal coming out of the ever unstable Indonesia -- but others note that Asian thermal coal prices have risen thanks to China's voracious appetite for coal. And Bumi has been helping to feed that giant -- KPC and Arutmin produced around 53.5 million tonnes of coal in 2006 with over 95% exported.
"We are excited about this strategic partnership with Tata Power which we would seek to expand to other areas of common interest," says Ari Hudaya, president director of Bumi says. "There are great synergistic opportunities for both the groups. We are also pleased with the outcome of our highly competitive auction process."
Bumi says it intends to use part of the sale proceeds to fully redeem the outstanding balance of the existing $900 million Indocoal Structured Notes Series 2006-2 that were issued in October 2006 as well as all the intercompany loans due to the coal companies. The redemption of the notes as well as the settlement of all the intercompany loans will make the coal companies debt free. It will also fully repay the outstanding debt at Bumi level.
Not bad, and keep in mind that Bumi, which bought the coal miners for about $685 million, also gets to maintain a majority stake in KPC and Arutmin.