Coal India, the world's largest coal miner, is in advanced talks to buy up to 40 per cent of Indonesia's Golden Energy Mines for as much as $1-billion U.S., three sources with direct knowledge of the deal said on Thursday.
The rare move to grab such a large chunk of an Indonesian miner would be the biggest acquisition deal in the country this year and signals Indian firms may be gaining the upper hand over Chinese rivals to tap the world's top exporter of thermal coal.
Golden Energy, with an estimated 400 million tonnes of reserves, is a coal mining subsidiary of energy and infrastructure firm Dian Swastatika Sentosa , whose shares reversed losses to climb as much as 9 per cent after the news.
"The due diligence has been going on for some time and will be completed soon and we plan to submit bid by the end of next month," a source told Reuters. "Some other players had also shown an interest in this asset, and Coal India is very well positioned to close this deal."
Golden Energy owns 10 coal mining areas across Indonesia including in Sumatra and Kalimantan islands, and plans to increase production capacity to 10 million tonnes this year, from 3 million tonnes last year. It targets producing 15 million tonnes in 2014.
State-run Coal India, in which the government sold a 10 per cent stake last year for $3.4-billion in the country's largest ever IPO, is half way through the due diligence for the Golden Energy asset, said two of the sources, who declined to be identified because the information was not public.
Indonesia's government said last month that Coal India was planning to invest up to $3-billion in a mine, steel and seaport on Kalimantan, without giving details.
United Tractors , Indonesia's biggest heavy equipment provider controlled by the country's largest listed firm Astra International , has withdrawn from the bidding process for the asset, sources said.
"The Indians are desperate to get their hands on this asset, and they think it's pretty hard for Chinese or local players to match their offer since the original estimation for the stake is worth between $300-million to $500-million," said a source in Jakarta with direct knowledge of the deal.
Officials at Coal India, headquartered in the eastern Indian city of Kolkata, and Dian Swastatika in Jakarta could not be reached for a comment.
Dian Swastatika Sentosa is owned by Sinar Mas Group, one of Indonesia's leading conglomerates that is controlled by Widjaja family. The group has interests in pulp and paper, crude palm oil, banking and energy with operation from China to Africa.
Shares in Dian Swastatika reversed losses of 11 per cent , ended up 2.2 per cent in the main Jakarta market, outperforming an index up 0.9 per cent.
Coal India, which the market values at about $53-billion, rose as much as 3.6 per cent to 390.80 rupees in the Mumbai market that rose 1.2 per cent. The stock is up about 24 per cent so far this year.
Indian coal, steel and power firms have been scouting for coal assets overseas to feed power plants at home. The energy-hungry nation aims to halve a near-14 per cent peak-hour power deficit within two years.
India's Aditya Birla, JSW Steel and Jindal Steel & Power are among firms short-listed for Australian coal explorer Bandanna Energy in a potential billion-dollar-plus sale, sources said on Monday. Australia's Linc Energy last year agreed to sell its Galilee coal project to Adani Enterprises in a cash and royalty deal worth $2.7-billion, marking the largest single mine investment by an Indian firm in Australia.
India holds 10 per cent of the world's coal reserves but local supplies are falling short of demand as the country builds more power plants, and as domestic coal projects run into environmental and land acquisition delays.
The country is likely to import 135 million tonnes of coal in the financial year that began on April 1.
Coal India, which accounts for nearly 80 per cent of India's coal output, had said late last year that it has set aside $1.2-billion for overseas buys and was evaluating few proposals for buying stakes in overseas coal mines. The company, however, has not been able to strike a deal in recent years.
In January, Indian state group International Coal Ventures, of which Coal India is a member, decided against countering Rio Tinto's $3.9-billion bid for Mozambique-focused miner Riversdale .