Looming Payment for Australia Coal Assets Hangs Over GVK

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Indian conglomerate GVK Group faces an October deadline to pay a final $560 million to billionaire Australian miner Gina Rinehart for coal assets it bought in 2011 and has yet to develop in Australia's outback.

The looming payment is the latest headache for GVK on three projects it took over at the height of the coal boom, which industry experts see as uneconomic with coal prices mired at five-year lows and unlikely to be developed for several years.

GVK bought 79 per cent stakes in the Alpha and Alpha West coal projects and a 100 per cent stake in the Kevin's Corner project from Rinehart's Hancock Prospecting for $1.26 billion, agreeing to pay the sum in three stages, with the final payment of $560 million no later than three years after the deal closed.

A senior GVK executive, who spoke on condition he was not named, confirmed the payment is yet to be made and is due next month.

Back in 2011, GVK had hoped the first mine would start producing in 2014, but the company has yet to sign off on a $10 billion plan to build a mine, rail and port as the coal price slump has made it tough to attract funding.

With no income from the project yet, the company faces a tough challenge to fork out $560 million.

"They will have to go to the banks and raise another loan," said Vibhor Singhal, an analyst at Phillip Capital.

"The future of the project is not in jeopardy. However, nothing has started yet, so there is still a question over how they can raise the funds and when they will start mining."

Two people familiar with GVK's Galilee Basin project said given the circumstances, GVK would probably need to renegotiate the payment deadline.

"Any such payments are a commercial matter and will be dealt with accordingly," said Josh Euler, a GVK Resources spokesman, in an emailed statement to Reuters. He declined to comment on how GVK would finance the payment.

Encouraged by huge energy demand in their home market and a shortage of domestic supply, Indian firms like GVK and Adani have spent billions overseas - including in Australia - to mine coal, which they want to ship to India to feed power plants.

But the projects in Australia have come up against a series of hurdles, including environmental opposition to the mines and the expansion of a port near the Great Barrier Reef that will be used to ship the coal.

The GVK Hancock project lies in the Galilee Basin, where massive reserves of coal remain untapped due to the costs of building ports and rail lines to Australia's east coast nearly 500 kms (310 miles) away.

GVK's share in the joint venture GVK Hancock is majority-owned by parent GVK Group, with listed entity GVK Power & Infrastructure owning the remainder.

Shares in GVK, which has a market capitalisation of $330 million, have lost 23 per cent since June 1 against a 2.4 per cent rise in the CNX INFRA Index, as the firm struggles to stem losses, trim its Rs 22,000 crore ($3.63 billion) in debts and the Hancock liabilities weigh on the stock, analysts say.

The listed company made a loss after tax of Rs 83.1 crore in the three months to end-June, widening from a loss of Rs 66.1 crore a year earlier.

A Hancock official did not respond to an email seeking comment.