Tata Power Company Ltd on Wednesday announced the completion of its acquisition of 30 per cent equity stakes in Indonesian thermal coal producers - PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia and related coal trading companies owned by PT Bumi Resources Tbk.

The agreement to purchase the $1.1 billion equity stake was signed on March 30 by the company.

Bridge loan

To complete the acquisition, a bridge loan facility worth $950 million was taken from a group of banks led by Barclays Bank. The loan has a tenor of one year. It has enabled Tata Power to become a shareholder of the coal companies in a short time and to help maximise shareholder value.

The acquisition was made through Tata Power (Mauritius) Ltd and Tata Power (Cyprus) Ltd, which are special purpose vehicles (SPVs), a company statement said.

This equity acquisition would support the Tata Power’s 7,000 MW upcoming power projects on the western coast, which will come up over the next five years. These projects would require around 21 million tonnes of coal.

Mr P.R. Menon, Managing Director, Tata Power, said in the statement that PT Bumi Resources has excellent coal export infrastructure and are strategically well placed to act as a source of supply for increasing regional demand.

Together, KPC and Arutmin produced approximately 53.5 mt of coal in 2006 with over 95 per cent sold into the export market. Tata Power has signed an offtake agreement with KPC, which entitles it to purchase around 10.1 mt of coal per annum till 2021.

The company intends to refinance this bridge loan facility immediately after completion of the acquisition and Barclays Bank, which has expressed an interest in doing so, will be given preference, the statement said.

PT Bumi Resources, which is one of the biggest Indonesia mining companies, plans to boost production to 100 mt by 2010. Indonesia, which has surpassed Australia as the world’s biggest exporter of thermal coal, produced 193.5 mt last year and output is expected to rise 10 per cent to around 214 mt this year.

Rising exports from Indonesia are expected to help keep a lid on regional coal prices, which have nearly doubled in the past three years due to limited Australian export growth plus rapidly rising demand from China and India.