Mercator Lines, India's second largest private shipping firm, expects to acquire a coal mine in Indonesia in the next one week for around $30 million, and plans to list its coal division overseas, a top official said, sending its shares up.
"The likely resources (of the new coal mine) are about 60 million tonnes. The deal value will be roughly be in the region of $25-$30 million, Managing Director Atul Agarwal told Reuters on Monday.
He said a bulk of the funds for the acquisition will be raised from internal accruals of its coal division.
Analysts said the move would further diversify Mercator from a shipping services company to one focused on coal mining and trading.
"This is a positive for Mercator and contribution from coal mines will increase. Freight rates have come down in the shipping business and this is like a cushion," said an analyst from Jaypee Capital.
Mercator already owns coal mines in resource-rich Indonesia and Mozambique, Africa. Mercator owns 100 percent of the Singapore-based coal mining unit known as Oorja Holdings Pte Ltd.
India holds 10 percent of the world's coal reserves, but local supplies are falling short as the country builds more power plants and domestic coal projects run into environmental and land acquisition delays.
Last week, GVK Power & Infrastructure said it will pay $1.26 billion for a majority stake in three Australian coal mines and a port and rail project owned by Hancock Group to secure long-term coal supplies for the Indian group's power projects.
Agarwal said Mercator Lines plans to float an initial public offering of its coal division by selling not more than 30 per cent stake in the latter.
"We are still in discussions. The IPO will probably take six months to an year's time," he said.
Reacting to the news Mercator's stock extended gains to end up 4.37 per cent at Rs 26.3 in a Mumbai market that closed down 1.1 per cent.
Mercator Lines shares have fallen 55 per cent so far in 2011.
Mercator diversified into coal mining four years ago and is looking to raise the contribution of the high margin coal division.
Agarwal said the coal division makes up about 60 per cent of Mercator's total revenue now, with the shipping division accounting for 32 per cent.
"The contribution from coal is likely to go up further. It could go to as high as two thirds," he said without specifying a timeline.
Firms such as Mercator and Great Eastern Shipping are keen on cutting exposure to the shipping segment in favour of coal mining and offshore business, which have better margins.
Mercator, which also has interests in offshore and oil and gas, has seen softer tanker and bulk freight rates sawing off shipping margins in the first quarter as also an oversupply of vessels in the segment.
The Mercator Group owns or operates a fleet of 18 dry carriers, eight tankers and four dredgers with an aggregate capacity of about 2.41 million DWT.He also said the firm was looking to pare its standalone debt by Rs 4 billion to rs 10 billion by the end of the current fiscal year.