Adani to put $30 bn in coal, power, shipping

The Adani Group, after acquiring Australian firm Linc Energy Ltd’s coal tenement, plans to invest $25-30 billion (Rs.1.2-1.4 trillion) in its businesses over the next seven years, said chairman Gautam Adani. These investments will be made in a slew of projects involving coal mine acquisitions, cement manufacturing, shipping, port construction, overseas farming and power generation among others.
“This investment will be made in all our businesses. We have a stated vision. By 2020, we should have port-handling capacity of more than 200 million tonnes (mt) of cargo annually, 20,000MW of commissioned power generation capacity and 200 mt per annum of coal mining capacity in India and overseas,” Adani said in an interview.

The Adani Group includes and Special Economic Zone Ltd (MPSEZ), Adani Power Ltd and Adani Enterprises Ltd.

“Adani Enterprises, through its step-down Australian subsidiary, Adani Mining Pty, has concluded a binding agreement with Linc Energy to purchase a 100 per cent interest in their coal tenement in the Galilee Basin, Queensland,” the company said recently in an announcement to the Bombay Stock Exchange.

The purchase deal is worth A$500 million (Rs.2,100 crore) and includes a royalty payment of A$2 per tonne of coal mined for 20 years. Linc said it can produce up to 60 million tonnes per year once the mine was fully operational. Simply put, Adani would pay A$2.4 billion in royalties alone over a period of 20 years.

Coal from the Galilee basin would support the rapid expansion of the power business of Adani Power in as well as the expansion of AEL’s coal business. It may be pointed out that the Adani group is the largest importer of thermal coal in .

The coal mine deal would considerably boost the company’s plans to increase its power generation capacity from 13,000 MW to 20,000 MW by 2020. The entire transaction has been financed from the company's own resources and banks, said a company executive.

“We will be able to start mining from these mines in the next four years,” Devang Desai, CFO of AEL, told reporters.

It will make an additional investment of around $5 billion over the next six years for further investment towards creation of infrastructure for the mine in that will also include the development of a port. The deal will be funded through internal accruals, the Rs.4,000 crore raised through its recent qualified institutional placement and partial debt. MPSEZ and Adani Enterprises together registered a net profit of Rs.1,595 crore on a turnover of Rs.27,418.51 crore in 2009-10.

In a related development, the group plans to invest $1 billion to develop a new coal terminal at Dudgeon Point in with an annual capacity of 30-60 mt.
As part of its plans to be present across the power generation value chain, from owning coal mines to shipping to controlling fuel costs, the firm is looking at acquiring other coal mines in , Africa and , and owns 20 ships to have greater control of the freight logistics.

“We have moved to acquire mines globally, and as part of our strategy to enhance our position in the power generating business, we are continuously evaluating 8-10 coal mine assets,” Adani said.

The country’s biggest coal trader imported 30 mt of coal in 2009-10 and plans to import 35 mt this fiscal. The company sources coal from Africa and . Adani has its own mines in , apart from which the group has long-term supply and offtake obligations with other mines.

The group’s track record is enviable, said Tapasije Mishra, group chief executive at SSKI Corporate Finance Pvt Ltd. “Gautam Adani is ahead of the curve in identifying high return on equity opportunities. He takes big bets and has the project execution track record to pull it off,” Mishra said.

Adani, who started as a trader and rapidly expanded into other businesses, believes project execution is his forte.
The firm, which currently has around 70 ships on long-term charter, plans to have a fleet size of 20 ships within the next five years as the freight rate component plays an influential role in sales and marketing patterns.

“We’ve already placed orders for four capesize ships requiring an investment of $250 million,” Adani said. “The plan to have a fleet size of 20 ships within the next five years will require an investment of around Rs.7,000 crore.”

Capesize vessels are the largest ships capable of carrying dry- bulk commodities and typically can bear as much as 175,000 tonnes of coal, steel or iron ore.
“This is a strategy followed by commodity traders and also consumers worldwide,” said TV Shanbhag, group advisor to ’s biggest ship-broking firm, Mumbai-based Trans Ocean Agency India Pvt Ltd.

“By moving into ship ownership, Adani is securing cargo at a pre-deter- mined freight rate and insulating it from the vagaries of the shipping market.”
Having gained a firm presence on west coast ports, Adani now plans to focus on the east coast and has submitted expressions of interest to Andhra Pradesh, Tamil Nadu and Orissa for developing ports having a minimum capacity of 30-40 mt at each site.
“There are also a number of offers of port acquisition. Anyone who is holding a licence is coming to us,” Adani said.

In an attempt to make use of the fly ash generated from its power plants, the group plans to enter cement manufacturing and has applied for limestone mining licences in .

“We’re hopeful that within the next six months we will start our cement operations,” Adani said. While the capacity has not been finalized, it will be a minimum of 5 mt and then it will be increased at every location where we have our power plant.
Fly ash is generated while burning coal. The cost of cement produced from fly ash-- 0.2 tonne of which goes to make one tonne of the building material is 5-10 per cent lower than that produced in the traditional manner.

The firm also plans to acquire fully or partially constructed power projects in and overseas after a period of two years as it considers that developing a project from scratch consumes time and requires a lot of clearances.
In an attempt to tap into the growing domestic demand for edible oil and pulses in , the group plans to set up farms in Africa, , , and .

“These are the places where you can get large tracts of land. We are looking at cultivating oilseeds and pulses,” Adani said.
The foreign ministry is working on a policy framework to encourage Indians to buy farmland in , a senior foreign ministry official said.

There is an abundance of fertile land in many South American countries as well as cutting-edge farm technology. There are no restrictions on foreigners owning land and in some places prices are lower than in parts of .

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