Adani Enterprises to invest Rs 6,500 cr in coal mining

After its big-ticket entry into infrastructure sector, such as port and power segments, the Adani Group is now focussing on end-to-end coal mining operation with a planned investment of Rs 6,500 crore over the next three to four years that includes laying of private railway lines in Orissa and Chhattisgarh to enable it to ship coal by sea route to Mundra and then transport it by train to the upcoming power plants in Gujarat and Maharashtra.

Recently, the flagship company of the group, Adani Enterprises Ltd (AEL), raised nearly Rs 4,000 crore primarily for its coal mining activity, company sources told.

QIP route

The AEL board had, through its May 14 resolution, enabled the company to raise funds through the QIP route for coal mining in India and abroad. AEL has set up a subsidiary, Adani Mining Pvt Ltd (AMPL), which will execute the mining of nearly 70 million tonnes per annum (mtpa) for the next 30 years of contract period from three coal blocks in Orissa and Chhattisgarh which, together, have mineable coal reserves of around 1,900 million tonnes (mt).These blocks had been allocated by the Centre to the State electricity boards (SEBs) of Gujarat, Maharashtra and Rajasthan, which entrusted mining work to AEL.

AEL will start mining of coal at Parsa Kante block of Chhattisgarh, in an area of 27.67 sq km with coal reserves of 452 mt, in mid-2011. Initially, it will mine half-a-million tonnes per annum, to be subsequently ramped up to 15 mtpa by 2014. Work on the Machchhakunta block in Orissa, with reserves of 1,200 mt in an area of 20.43 sq km, will start in 2013, peaking up to 50 mtpa in 2018. Similarly, mining of 5 mtpa of coal in an extension of Parsa block in Chhattisgarh, with reserves of 150 mt, will commence in 2013 and peak in 2016, the sources said.

To transport this mined coal, the company will lay private railway lines of 22 km and 67 km, respectively, from the Machchhakunta and Parsa blocks. It will also acquire land on behalf of SEBs and set up coal washing facility, before transporting coal to the nearest railway stations. From there, coal will be shipped from Paradip and Kalinga ports of Orissa by sea route via the Bay of Bengal and the Arabian Sea to Mundra in the Gulf of Kutch. “This relatively cheaper transportation of coal via the sea route would improve our margins,” the sources said.

Funding pattern

To fund coal mining, the company will utilise Rs 2,500 crore, out of the Rs 4,000 crore raised last week, as equity, and has tied up debt of Rs 4,000 crore. The balance of Rs 1,500 crore from QIP funds, it will utilise in acquiring coal blocks abroad. After the rights issue, QIP and full conversion of FCCBs, the net worth of AEL would be nearly Rs 10,000 crore and it would become a zero-debt company at a holding level.

The promoters' holding of AEL, which was 84 per cent post the merger of Mundra Port and SEZ Ltd, is now 78 per cent post-QIP exercise. By mid-August, with the completion of merger process, the market capitalisation of AEL is expected to be Rs 66,000 crore, making it one of the top 10 companies in India, the sources added.