India?s GMR Energy acquires Sinar Mas? coal unit for $550m

Indian firm GMR Energy, a subsidiary of GMR Infrastructure, has entered into an agreement to acquire 30% stake in Golden Energy Mines Tbk (GEMS), a coal mine unit of Sinar Mas Group for a value of $450-550 million.

The stake purchase will help GMR secures coal over the next 25 years, with the annual offtake quantity steadily increasing to 10 million tonnes over the coming years. GEMS has reserves of over 860 million tonne and coal resources of 1.9 billion tonne, GMR said.

An offtake is an agreement between a producer of a resource and a buyer of a resource to purchase or sell portions of the producer's future production. It is negotiated prior to the construction of a facility, such as a mine, in order to secure a market for the future output of the facility

"It will provide fuel security for our power plants under construction and support further capacity addition and trading," BVN Rao, business chairman, GMR Energy, said.

The acquisition will be funded through a combination of debt and internal accruals made through an offshore special purpose vehicle (SPV) in Singapore. This transaction is subject to the fulfillment of several conditions and is expected to close in calendar 2011, the company said.

GMR plans to set up power plants generating 12,000 MW capacities in 5-6 years. Of this, 65% will be coal based. The Bangalore-based company will require 40 million tonnes of the fuel for the same.

GMR Energy has 17 power plants of which four are operational and 13 are under various stages of implementation. "The Off take agreement will give GMR Energy access to the required quality of coal from one of the lowest cost producers in Indonesia," Raaj Kumar, CEO GMR Energy, said

GEMS, a subsidiary of PT Dian Swastatika Sentosa (DSS), owns four producing and six non-producing thermal coal concessions in Sumatra and Kalimantan. DSS is focused on power & steam generation, coal mining, trading and telecommunication infrastructure development. (romel)