Coal India Moves Toward IPO

The Business of Mining - thebusinessofmining.com | June 21, 2010 | 10:23 am Energy Coal 

“State-owned Coal India Ltd. is likely to file a draft prospectus in the second half of July for a proposed 130 billion rupee ($2.8 billion) initial public offering, a person with direct knowledge in the matter said.

The government is considering selling a 10% stake, or 631.64 million shares, in the company that produces more than 80% of the country’s coal requirement. It would be the largest stake sale by the federal government to date.

‘The work [on compiling the draft prospectus] is on. The company is working on complying with all capital market regulations including filling up board seats with independent directors, all of which could take another month to complete,’ the person said. The person said the company hopes to launch the IPO in September.

Source: Wall Street Journal, June 19 2010

Observations:

  • The Indian government is planning to spend the money raised through the IPO on infrastructure and social welfare projects.
  • Coal India has 471 mines (March 2010) of which 273 are underground, 163 opencast and 35 mixed mines. CIL further operates 18 coal washeries, (12 coking coal and 6 non-coking coal). The many small operations are organized into 8 core geographical business units.
  • The IPO will most likely take place in August, months ahead of previous analyst expectations. One of the key obstacles is the government regulation on issueing of shares to employees of subsiduaries.

Implications:

  • The IPO of the company will force the major diversified miners to evaluate their investments in India. Acquiring part of the coal miner could be a good way for the iron ore producers to form a strategic alliance with the Indian government and position for Indian growth.
  • As Coal India takes care of approx. 80% of the demand for coal in India, imports still are limited. However, the company will have to scale up production from its many small operations enormously in order to cope with the increasing demand in the coming decades.

Infomine: Coal Fields in India

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