Coal news and updates

KKR joins the fray for Rio’s coal assets

Private equity giant KKR has joined a host of bidders for Rio Tinto’s Hunter Valley thermal coal assets as the global miner presses ahead with a decision to cut its exposure to the out-of-favour commodity.

While the timing of the $3 billion portfolio’s sale is inauspicious, given persistent doubts over China’s economy and the consequential havoc wreaked upon the resources sector, at least half a dozen suitors have so far expressed an interest, including X2, Glencore, New Hope and the Chinese-backed Shenhua Coal.

Rio, which like its peers has been badly battered by volatile commodity prices with its share price sliding close to 15 per cent since the start of the year, is not expected to shelve the sale, which is being run by Deutsche, as first revealed by DataRoom.

But the global miner has adopted a flexible stance to the ­timeframe and it is understood bid deadlines are not set in stone.

One source argued that Rio would press on with the sale, partly because of fears a reversal could tarnish the value of the assets since a revived process in a year or two will draw the same contingent of bidders.

It is understood KKR has taken a turn in the data room along with the main contenders like X2, which is headed by former Xstrata boss Mick Davis and advised by Goldman Sachs.

KKR’s energy and infrastructure team is headed by Tony Schultz, who joined in 2014 but is yet to make a major acquisition in the resources space.

In an unusual twist, Macquarie Group has also run an eye over the assets. The investment bank is understood to have now retreated to the sidelines and remains an interested observer.

Its interest, however, indicates the investment bank is prepared to make a maiden foray into the coal industry in what some argue is an opportunistic move to capitalise on the pressure imposed on rivals to steer clear of the fossil fuel.

Earlier this month both Commonwealth Bank and Britain’s Standard Chartered canned financial advisory contracts on Adani’s multi-billion-dollar Carmichael Coal project.

While the Indian energy giant’s Australian subsidiary has insisted it requested the cancellations due to concerns about regulatory delays, other lenders have given the mega-mine a wide berth amid mounting pressure from environmental campaigners.

ANZ, the biggest lender of the big four to domestic coal, oil and gas projects, has faced heavy criticism from pressure groups and was the subject of a hoax press ­release in connection to the Whitehaven coal mine in 2013.

The heightened publicity ­attached to coal projects means many banks are approaching the industry, and particular projects, with greater caution.

However, it is understood Macquarie remains sanguine about the prospects for “black gold” and expects Asia will continue to rely upon the fossil fuel as a chief source of energy over the next few decades, with Australia dependent upon it as a key export earner.

If Macquarie were to re-emerge as a contender it might hoover up a portion of the Hunter Valley business and funnel it into a fund supported by inter-group loans, rather than mount a bid for all the assets.

Indeed a carve-up scenario remains a likely outcome, according to sources.

X2 is the favourite to acquire the entire business.

But if the private-equity style company baulks at the price, sources said Brisbane-based New Hope, advised by Pitt Capital, would take the Bengalla and Mount Pleasant assets as these ­offered the greatest growth prospects.

Glencore, which has been hard hit by declining values in commodities with its shares losing more than half their value in the past year, could cart off the remaining two-thirds of Rio’s Hunter Valley business.

The Zurich-based miner and trader has long coveted the assets and the two parties have discussed joining forces in the region multiple times.

source: http://www.theaustralian.com.au