GVK Power and Infrastructure is asking investment banks to submit proposals to advise on its acquisition of two Australian coal mines owned by Hancock Prospecting, sources said on Wednesday.
The process, known as a “beauty parade” of investment banks, is aimed at taking on financial advisers to help secure a deal after more than four months of exclusive talks between GVK and Hancock, four sources familiar with the deal told Reuters.
JPMorgan and Bank of America Merrill Lynch were among the banks expected to seek a role in the process, two of the sources said. GVK was seeking to work with the banks on ways to fund the deal, they said.
“GVK is looking at options and is running a process to select an adviser,” one of the sources said.
GVK had done some work with Ernst & Young on the deal which was being handled by an in-house team, a source said previously.
GVK’s negotiations to buy the Alpha Coal and Kevin’s Corner mines in Australia’s Queensland state began in February before the two parties moved into exclusive negotiations about four months ago. The deadline for those talks has been extended until later this month.
The initial investment has been estimated at $1.3 billion, according to sources, but GVK may need to come up with billions of additional dollars to fund future capital works.
Some analysts and bankers have expressed doubts whether GVK, which the market values at about $614 million, would be able to pull off such a large acquisition.
“With what GVK has put on the table it is going to be hard to see how they can come up with the goods,” one source said.
“This has been dragging on for a long time. It (GVK) is either to try and come up with other sources of equity or to start talking to lending banks around a debt facility.”
GVK may have to arrange up to an additional $7 billion over six years in working capital and other investments, sources have told Reuters previously.
GVK is expected to take loans from India’s No.2 lender ICICI Ban, Standard Chartered and domestic public sector lender Bank of Baroda to finance the deal, the sources said.
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.