GVK will invest an additional $10 billion (Rs47,490 crore) to develop the assets of Hancock Coal, which would make it the largest investment by an Indian company in Australia.

The GVK-Hancock deal includes the Hyderabad company acquiring a majority stake in Hancock coal mines, railway line and port infrastructure projects and an option to buy 20 million tonnes of coal annually under a long-term supply contract.
 
The acquisition will be made through GVK Coal Developers, Singapore Pte Ltd, an indirectly-owned subsidiary of GVK Natural Resources Pte Ltd,  a GVK Group joint venture with GVK Power and Infrastructure Limited. 

Initially GVK Natural Resources will hold a 90-per cent stake and GVK Power  the remaining 10 per cent in the projects.

GVK Power has the option to increase its stake upto 49 per cent, subject to approvals from Australia's foreign investment regulator. 

Under the deal agreed yesterday, GVK will acquire a 79-per cent stake in the Hancock's Alpha and Alpha West high quality thermal coal projects, located in the Galilee Basin in Queensland, with Hancock retaining the rest. 

The entire stake in the Kevin's Corner Coal Project, located next to Alpha, and the entire stake of Hancock's rail and port project linking the two coal projects to the Abbot Point port and Abbot Point T3 expansion project, will be acquired by GVK, with Hancock retaining some tonnage capacity for itself.

The coal project consists of reserves of  7.9-billion tonnes of which at least 3.3 billion tonnes are extractable.

The infrastructure project involves the development, ownership and operation of an integrated infrastructure development consisting of a 495km rail line and a 60 million tonnes per annum capacity port at Abbot Point.

At full production the three coal projects are together expected to supply about 84 million tonnes per annum to the global sea-borne coal market. The first phase of production, expected to start in 2014, envisages a total production of over 30 million tonnes per annum of high quality thermal coal.

GVK estimates the total investment in the first phase to be at approximately $10 billion, which includes capital expenditure on the mines, rail line and port.

GVK group chairman GVK Reddy said, "This acquisition builds a strong resource business for GVK and will significantly enhance the value to GVK Power shareholders as we will now be able to increase the capacity of our coal power business with an assured in house supply of raw material."

Most of the coal from the project is intended for delivery in the Asian region as Letters of Intent for approximately 45 million tonnes per annum have already been signed or are in the process of finalisation with major utility companies in China, Japan, Korea, Taiwan and Vietnam.

Under a bank-tied funding, GVK will pay Hancock $1.26 billion in instalments, with $500 million to be paid now on signing the deal, $200 million to be paid one year from closing, and $560 million on financial closure of the project, expected in 2012 but not later than three years from closing. 

The financing documents for funding the acquisition are being executed with the banks and the transaction is expected to close and assets transferred to GVK in about two weeks. 

As part of the deal, Hancock's chairman Georgina Hope Rinehart, Australia's richest woman, will join GVK Power's board as a non-executive director.

Rinehart termed the deal as one of the biggest between Australia and India and the largest project to be undertaken by both Australian and Indian companies.

GVK, which currently produces 900 megawatts of power, needs thermal coal for its upcoming power projects. The group currently has 3,500 megawatts of power under construction including a 540 megawatt plant in North India.

GVK Group is one of India's largest infrastructure developer with interest spanning areas such as energy, airports, roads and urban infrastructure. In addition, GVK is also involved in many other businesses held by it privately including real estate, hotels, pharmaceuticals and resources.
As on date GVK has invested over Rs10,000 crore ($2.2 billion) in various projects and has on hand projects in the pipeline of over Rs25,000 crore ($5.5 billion).