A drop in the share price of Indonesian coal companies is making the sector more attractive for potential acquisitions by foreign investors, a report from global rating agency Fitch Ratings says.
“Given the lower value of coal mines compared with earlier in 2008, there will likely be a re-emergence of foreign interest in acquiring stakes in Indonesian coal mines to ensure future coal supply,” Fitch Ratings’ analysts Jessie Wahab and Kalai Pillay said in a report.
Shares in Indonesian coal companies have taken a heavy battering lately, dragged down in part by an decline in oil prices, exacerbated by ongoing concerns of a global recession, which would eventually reduce demand.
The share price of PT Bumi Resources, Asia’s biggest thermal coal exporter, has declined by more than 90 percent, to close at Rp 710 (US60 cents) on Friday, after peaking at Rp 8,500 in mid-June.
Shares in PT Adaro Energy, Indonesia’s second biggest coal miner, have fallen 56.36 percent since their initial public offering in July this year. Adaro’s shares, priced at Rp 1,100 each in the IPO, closed at Rp 480 on Friday.
The value of shares in PT Indo Tambangraya Megah, Indonesia’s fourth largest coal company, have dropped 60.60 percent since the start of the year. Its shares, trading at Rp 18,150 on Jan. 2, were priced at Rp 7,150 on Friday.
Such a phenomena, the report says, attracts global producers, particularly from coal-hungry India, to look for opportunities in Indonesia’s coal mines.
According to Fitch Ratings, over the past few year, Indian global producers have been actively seeking to acquire coal blocks in Indonesia to meet India’s growing demand for coal, as it aggressively expands power networks.
To India, Indonesia presents an attractive market, because of both its prox-imity and the higher caloric value of its coal, the report added.
So far, the biggest transaction between Indonesia and India has been Tata Power’s acquisition of a 30 percent stake in PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia in 2007, valued at US$1.3 billion.
Investors from other regions have also shown interest in acquiring Indonesian coal mines. Northstar Pacific, for example, is in talks to finalize a purchase of a 35 percent, or $1.3 billion stake in Bumi.
The lower value of coal mines has also led to increased interest in the sector from local companies. Tin miner PT Timah and a heavy equipment supplier PT United Tractors are reportedly looking for coal concessions to acquire.
However, Fitch Ratings said this potential acquisition might be deterred because of uncertainty in regulations, as the government and lawmakers have yet to pass the new mining law.
Also in the report, Fitch said it expects the country’s coal production output to grow at a lower rate than expected, due to delays in planned production increases and the fall in the value of mineable reserves, given the decline in coal prices.
Find Article by Date