Coal India Leads the Way in Ambitious Indian IPO Season

Commodity prices are on the rise again, even for products like oil and coal for which there is little discernible supply shortness. We wrote about the rise in thermal coal prices last month driven by demand across the emerging market but particularly in India and China.

Source: Reuters

This month China announced measures to try to reduce their import bill by boosting domestic production. At a conference last week, Reuters reported that China’s top energy official, Zhang Guobao, said China’s overall coal production is expected to increase by some 200 million tons to about 3.2 billion tons this year. At the same time, they continue to try and consolidate production to a smaller number of major players, cutting out less efficient small mines with poor safety records.

Not so fortunate is India, whose rapidly rising demand for thermal coal will increasingly need to be met by imports. The Indian economy is on track to grow 8.5% in the current fiscal year, but demand for coal is forecast to grow by 11% as the country aims to halve its peak-hour power deficit of nearly 14% over the next two years. India will no doubt be pleased to hear of any moves by China that mitigates their impact of the global seaborne coal market by boosting domestic production. The goal for India is to triple electricity generating capacity over the next decade and so Coal India, which in contrast to China’s fragmented industry accounts for nearly 80% of coal output in the country, is having to look at projects in Australia and Indonesia to maintain its domestic supply dominance. A recent IPO valued the company at $48.9bn placing it fourth in the country behind Reliance Industries, state owned oil company ONGC and State Bank of India.

The Indian state is embarking on a program of share sales to take advantage of booming commodity prices and probably to inject additional commercial skills into state sector companies. Following the successful offering of Coal India, 15 times over subscribed according to Reuters, Power Grid Corp is looking to raise $1.9bn this month followed by Manganese Ore India Ltd next month and additional shares in Hindustan Copper. The increased global investor liquidity following US quantitative easing will add support to India’s share sale program, as will firm commodity prices. Like China, major Indian state companies are gradually coming to the private market and gaining recognition as global players in their own right. Unlike China, India broadly lets their privatized companies behave like private entities rather than seek permission from the state at every turn. With solid growth and a gradually more accessible economy, India is certainly commanding a lot of attention in the resources sector with these IPOs.

–Stuart Burns

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