The deallocation of coal blocks by the Supreme Court last month has dealt a body blow to Kolkata-based EMTA Coal, owned by media-shy billionaire Ujjal Upadhyay, as the company is set to lose all its 14 mines that it operates as joint venture with mostly state-owned power utilities, stripping it off its only known source of revenue.
In the event of lingering concerns, rating agency India Ratings has threatened to downgrade the firm even as company officials said they don't have any backup plan and hope for some leniency from the Supreme Court. Putting Emta Coal Ltd's ratings under negative watch, India Ratings said the action results from the potential stoppage of Emta's operations at 14 blocks after the apex court's order of September 24.
"The court ordered cancellation of 204 coal blocks of the total 218 coal blocks which were allocated. Of these 204 coal blocks, only 37 are operational (14 operated by EMTA)...The rating watch negative indicates that the ratings could be downgraded or affirmed upon resolution," India Ratings has said.
EMTA has a BBB+ rating for long term loans. EMTA sees this as a collateral damage from the Supreme Court order. "There's nothing much we can do now. We were not a party to the case and the actual allottees of these 14 mines are power utilities owned by state or central governments. We had formed joint ventures with these utilities to operate, develop and supply the coal extracted exclusively to the allottees," Purajit Roy, group vice-president of EMTA told dna.
Under these pacts, EMTA supplied extracted coal to the allottees at a discount price to Coal India's notified price for exclusive end use of generation of electricity at the respective thermal power stations of the said state/central government owned power utilities. "However, given that EMTA will continue to operate on these 14 coal blocks at least until March 2015, there will not be any significant impact on its credit profile in the short term," the rating agency noted.
"While we will continue to operate these mines for sometime, there is not much we can do to mitigate the impending catastrophe except perhaps expecting some breather to these utilities to whom these mines were allocated," Roy said.
"India Ratings will resolve the rating watch as and when there is more clarity on re-allocation of the mines and its impact on Emta's business and financial profile," the statement from the agency said.
Privately held EMTA's revenues in FY13 was Rs 1,167.46 crore with a high operating margin of 33.3%. Its several joint ventures provide long-term (20-30 years) off take agreements which assures fixed revenue and profit margins.
All these probably could spell doom for the company in five months, unless of course, resourceful and highly connected Upadhyay comes up with a surprise.
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