Delhi, March 29, 2010 — A permanent change to deal financing strategies, greater investment from Asian buyers and ongoing volatility will characterize the 2010 transactions market in the mining and metals sector, according to Ernst & Young’s global mining and metals sector transactions report,2009:
While globally, deal values plummeted for the second year in a row, India was one of the few countries that witnessed increased deal activity, in terms of both deal value and volume in the sector. Indian metal & mining companies completed 16 deals worth USD 981 million in 2009, an increase of 45% in deal count and 173% in deal value as against 2008. Transactions were subdued in the first half of the year as companies focused on de-leveraging and conserving cash for operations but activity picked up as the economy stabilized and liquidity improved.
Navin Vohra, Partner and National Leader, Metals & Mining practice, Ernst & Young, stated, “In India the key driver for striking deals was resource security and backward integration across the supply chain.” He further added, “Although the global transaction market in 2010 will remain challenging and megadeals will be scarce, we expect to see growth in the number and size of deals. Companies will be using long-term perspectives in doing transactions – but market volatility and the scars of the financial crisis will dampen the appetite for riskier transactions."
The quest for Indian energy companies for thermal coal to power India’s electricity demand, the interest of Indian steel companies in domestic coal deposits and iron ore mines and the desire of domestic and international steel companies for backward integration by acquiring downstream processing units, largely fuelled the deals. The biggest Indian acquisition of 2009 was done by the Vedanta group through its subsidiary Sesa Goa wherein it acquired Dempo’s mining assets for USD 370 million.
A notable aspect of the global deal activity in the sector was the emergence of Asian and Middle Eastern acquirers, especially China. The biggest global acquisition was done by China’s Yanzhou Coal Mining Co. of Australia’s Felix Resources for USD 2.6 billion. Of the top 10 state owned enterprise transactions in the sector globally in 2009, 6 were Chinese. The increasingly strong Chinese yuan, along with lower asset prices, turned previously unavailable opportunities into real prospects. According to Navin Vohra, ”China made good use of prevailing market conditions and went ahead with acquisitions, while other countries were struggling in 2009. Sovereign Wealth funds in China had a major role to play in this”.
Indian public sector companies such as Coal Videsh, SAIL, International Coal Ventures Limited, have been actively looking for offshore assets but haven’t made any acquisition to date. “A trend to watch for will be whether these companies will make outbound acquisitions this year. 2010 could be the year of Indian mining PSUs becoming multinational”
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