Now the last official hurdle for listing of the world’s largest coal mining company Coal India has gone. The stock market must be excited to invest in the maiden offer judged by the response in media it did not seem so. The reports were more on the internal conflict, real or imaginary, within the cabinet than on the potential impact of the listing in the Indian market. Such disinterest is curious to say the least.
Coal India public issue has several unique features. First and most important for any investor is that Coal India does not have any competition in the world. The companies which can be compared with the Indian Navaratna are Peabody Energy Corporation of USA and China Shenhua Energy Company. Shenhua is into logistics and power generation apart from coal mining. It produces 186 million tonnes of coal against 431 million tonnes of Coal India. Peabody sold (year 2009) more than Shenhua, 244 million tonnes.
But for investors more than the current production what will be critical is the reserves the company can command. Coal India has by far the largest coal reserves in the world — at 63 billion tonnes, it is nine times the reserve of Shenhua and seven times that of Peabody.
Take a look at the listed entities. Peabody is currently ruling at US $ 41 per share around Rs 1,856. The company claims to be the largest coal mining company in the private sector. It feels that coal is the fastest-growing fuel in the world.
Till Coal India comes for listing, Peabody continues to be the only global pure-play coal investment. The company claims to have access to the largest and fastest growing markets in the world — both the superlatives are rather tall claims given the fact that India happens to be one of the fastest growing and largest market. Indeed, even a cursory comparison with Coal India makes Peabody look small. No wonder the company is now in advanced stages of negotiation with Coal India for joining in coal development projects.
According to Coal India chairman Partha S Bhattacharya, “No coal company in the world can survive without continued expansion. This is due to the fact that the fixed cost for a coal company is high and can only be recovered through increased production and sale. Only Coal India can offer this lifeline to Peabody. Thus, even for international funds Coal India makes better sense as investment than Peabody.”
Shenhua Group Corporation Limited is a Chinese government-owned enterprise, founded in October 1995. It is a diversified energy enterprise with major businesses concentrating on coal production, sales, electricity & thermal generation, coal liquefaction & coal chemicals, railway and port transportation. Clearly it does more than what Coal India does in India. Shenhua Group is a unified energy company in China with integrated segments of coal, railway, power and ports, and has integrated its coal production, transportation and sales. It owns 54 coal mines with a total capacity of 200 million tons, 1369 kilometers of dedicated railways with a total transportation capacity of 128 million tons/kilometer, power plants with a total installed capacity of 16,080 MW. The market capitalization of Shenhua at a share price of Yuan 23.30 is around Rs 3,162 billion - Rs 316,200 crore.
Where can one position Coal India in terms of valuation? This is task of the Group of Ministers assisted by the BRLMs. But the international comparisons indicate a valuation which India’s public sector enterprises are not presumed to be worth. That is a curious anomaly in Indian analysis. When it comes to positioning a private sector entity with or without any asset on the ground all like to create hype. When the same comes to a state-owned company the tendency is to run it down. Even the investment bankers show less aggression in positioning a PSU issue than they do while working for well-networked private companies in India. Coal India cannot break out of this trend. If at all it does it will be a
miracle.
Apart from valuation of the stock the issues which will be raised against the Coal Navaratna will be the size of the issue. By even a conservative estimate Coal India is expected to mop up Rs 12,000 crore upwards. It will be the largest in the Indian market. Remember the kind of problem NMDC issue faced when it aimed to raise around Rs 10,000 crore in early 2010?
There is no reason to think that the mindset has changed since then. Second and an important problem Coal India issue will face is on the retail front. For some reasons - mostly linked to immediate post-issue gain- retail investors have been shying away from the IPOs. Even if Coal India leaves a prospect of 10 to 15 per cent gain on listing this will be dismissed as too little by the media and analysts. The company can overcome this problem if it manages to rope in its four lac employees and make them apply for the quota reserved for them. If the same happens on the first day of the issue open Coal India might see some retail interest.
Coal India will face attack on two other issues like environmental and law & order. Take the second one first. Most of its major coal bearing areas fall in the states where the extremists are strong. This make evacuation of coal difficult from the mines to markets. True the naxals do not disrupt coal production as such but movement of coal is no less important. Shortages of wagons, partly due to naxal problem, are another problem. During the roadshow questions will come up on the naxal problems.
The other important problem will be the recent dispute between the environment ministry and the coal ministry. The environment ministry has issued its wish list which will prevent Coal India from mining in at least 30 per cent of mineral rich regions effectively killing the prospect of generation 120,000 mw of electricity. The matter is now with the office of the Prime Minister where TKA Nair, the principal secretary to the Indian Prime Minister has been mediating. This indeed was a great timing by the environment minister to spike the IPO of Coal India.
But look at the company objectively and judge for yourself. This is by far the largest coal mining company. It has been a remarkable turn around story - from a dying company in the seventies to the present position is a story worth following. This journey also showcases the internal management strength. The company has excellent senior management with a Chairman who has all information, including comparative financial figures, at his finger tip. What is more the company has excellent future - huge market, no debt, a Rs 36,000 crore of cash reserve, reasonable satisfied employees in a sector which used to be dominated by militant unions, excellent safety standard and a well laid out future expansion plan including increasing calorific value of coal through coal washing. The critical most factor is that all these have been achieved at half the global price.
Coal India is a success story of government ownership. Will the government narrate it forcefully?
Coal India public issue has several unique features. First and most important for any investor is that Coal India does not have any competition in the world. The companies which can be compared with the Indian Navaratna are Peabody Energy Corporation of USA and China Shenhua Energy Company. Shenhua is into logistics and power generation apart from coal mining. It produces 186 million tonnes of coal against 431 million tonnes of Coal India. Peabody sold (year 2009) more than Shenhua, 244 million tonnes.
But for investors more than the current production what will be critical is the reserves the company can command. Coal India has by far the largest coal reserves in the world — at 63 billion tonnes, it is nine times the reserve of Shenhua and seven times that of Peabody.
Take a look at the listed entities. Peabody is currently ruling at US $ 41 per share around Rs 1,856. The company claims to be the largest coal mining company in the private sector. It feels that coal is the fastest-growing fuel in the world.
Till Coal India comes for listing, Peabody continues to be the only global pure-play coal investment. The company claims to have access to the largest and fastest growing markets in the world — both the superlatives are rather tall claims given the fact that India happens to be one of the fastest growing and largest market. Indeed, even a cursory comparison with Coal India makes Peabody look small. No wonder the company is now in advanced stages of negotiation with Coal India for joining in coal development projects.
According to Coal India chairman Partha S Bhattacharya, “No coal company in the world can survive without continued expansion. This is due to the fact that the fixed cost for a coal company is high and can only be recovered through increased production and sale. Only Coal India can offer this lifeline to Peabody. Thus, even for international funds Coal India makes better sense as investment than Peabody.”
Shenhua Group Corporation Limited is a Chinese government-owned enterprise, founded in October 1995. It is a diversified energy enterprise with major businesses concentrating on coal production, sales, electricity & thermal generation, coal liquefaction & coal chemicals, railway and port transportation. Clearly it does more than what Coal India does in India. Shenhua Group is a unified energy company in China with integrated segments of coal, railway, power and ports, and has integrated its coal production, transportation and sales. It owns 54 coal mines with a total capacity of 200 million tons, 1369 kilometers of dedicated railways with a total transportation capacity of 128 million tons/kilometer, power plants with a total installed capacity of 16,080 MW. The market capitalization of Shenhua at a share price of Yuan 23.30 is around Rs 3,162 billion - Rs 316,200 crore.
Where can one position Coal India in terms of valuation? This is task of the Group of Ministers assisted by the BRLMs. But the international comparisons indicate a valuation which India’s public sector enterprises are not presumed to be worth. That is a curious anomaly in Indian analysis. When it comes to positioning a private sector entity with or without any asset on the ground all like to create hype. When the same comes to a state-owned company the tendency is to run it down. Even the investment bankers show less aggression in positioning a PSU issue than they do while working for well-networked private companies in India. Coal India cannot break out of this trend. If at all it does it will be a
miracle.
Apart from valuation of the stock the issues which will be raised against the Coal Navaratna will be the size of the issue. By even a conservative estimate Coal India is expected to mop up Rs 12,000 crore upwards. It will be the largest in the Indian market. Remember the kind of problem NMDC issue faced when it aimed to raise around Rs 10,000 crore in early 2010?
There is no reason to think that the mindset has changed since then. Second and an important problem Coal India issue will face is on the retail front. For some reasons - mostly linked to immediate post-issue gain- retail investors have been shying away from the IPOs. Even if Coal India leaves a prospect of 10 to 15 per cent gain on listing this will be dismissed as too little by the media and analysts. The company can overcome this problem if it manages to rope in its four lac employees and make them apply for the quota reserved for them. If the same happens on the first day of the issue open Coal India might see some retail interest.
Coal India will face attack on two other issues like environmental and law & order. Take the second one first. Most of its major coal bearing areas fall in the states where the extremists are strong. This make evacuation of coal difficult from the mines to markets. True the naxals do not disrupt coal production as such but movement of coal is no less important. Shortages of wagons, partly due to naxal problem, are another problem. During the roadshow questions will come up on the naxal problems.
The other important problem will be the recent dispute between the environment ministry and the coal ministry. The environment ministry has issued its wish list which will prevent Coal India from mining in at least 30 per cent of mineral rich regions effectively killing the prospect of generation 120,000 mw of electricity. The matter is now with the office of the Prime Minister where TKA Nair, the principal secretary to the Indian Prime Minister has been mediating. This indeed was a great timing by the environment minister to spike the IPO of Coal India.
But look at the company objectively and judge for yourself. This is by far the largest coal mining company. It has been a remarkable turn around story - from a dying company in the seventies to the present position is a story worth following. This journey also showcases the internal management strength. The company has excellent senior management with a Chairman who has all information, including comparative financial figures, at his finger tip. What is more the company has excellent future - huge market, no debt, a Rs 36,000 crore of cash reserve, reasonable satisfied employees in a sector which used to be dominated by militant unions, excellent safety standard and a well laid out future expansion plan including increasing calorific value of coal through coal washing. The critical most factor is that all these have been achieved at half the global price.
Coal India is a success story of government ownership. Will the government narrate it forcefully?
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