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Coal India rushes to buy overseas mines as coke prices jump

Seeks bids for selecting investment bankers for indentifying and executing deals abroad

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Back on the heels of spiralling met coke prices, Coal India has initiated process to acquire Coking coal or Metallurgical coal mines abroad.

The state-run near monopoly coal miner has just floated a global tender to appoint merchant bankers to identify and execute such asset deals.

"Coal India is sending the attached expression of interest to invite your company to participate in the process of selecting an internationally reputed Merchant Banker/Investment Banker for facilitating CIL to set up metallurgical coal or low ash thermal coal mining business overseas," a letter issued by Coal Videsh, the international business arm of Coal India said.

The development comes following the steep rise in global prices of metallurgical coke derived from such coal and Coal India's own steps recently to raise prices of coking coal.

Effective Saturday, Coal India's subsidiaries Central Coalfields Ltd and Bharat Coking Coal Ltd have raised coking coal prices.

While Coal India hasn't disclosed the exact extent of price hikes, CIL told the exchanges that the step would help earn Rs. 8.99 billion of additional revenue in the balance of fiscal FY17 and Rs 2.22 billion in the next fiscal year.

"Overall upward revision is in the tune of more than 20% and direct feed coal and washed coking coal is linked to the price of international coking coal," a statement issued by the Coal Consumers' Association of India said.

Prices of met coke, made by destructive distillation of blends of coking coal and used primarily by steel makers, nearly tripled since January 2016 till December after which it has cooled down a bit.

Such price movements, however, make acquisition of overseas assets all the more difficult.

"Nobody would be willing to offer their assets when the commodity has shown such an upswing," an analyst with a brokerage firm said.

Add to it, Coal India, being a government owned company, has to be careful with the prices that it quotes for any overseas asset if it doesn't want to rub the Central Vigilance Commission the wrong way.

"While efforts are on to enhance coal production from indigenous sources, it will not be possible to bridge the entire gap of demand of coking coal and high-grade low ash thermal coal, primarily because of limited availability of recoverable coking coal reserves and near absence of high grade low ash thermal coal reserves in the country," the bid document said while explaining the need to acquire the mines overseas.

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