India's biggest private power producer plans to sell a stake in Griffin Coal in a bid to slash its mounting debt load - a move which could pave the way for an expansion of its Collie coal mine.
Lanco Infratech chairman L. Madhusudhan Rao made the comments after the company's annual meeting as part of its bid to pare back its debt to equity levels to a more sustainable, but still high, 4:1 ratio.
"We are looking at raising $750 million as equity for thermal, coal and hydro electric power projects," he told the Business Standard in India. "If we bring this (money) in, it is going to bring back the debt equity situation at par with any other peer companies."
But in an admission of its struggles in Collie, Mr Rao separately said Lanco was "not averse" to selling a majority stake in Griffin to help fund its expansion, less than two years after taking control of the WA company.
Lanco bought Ric Stowe's debt-laden Griffin Coal empire for $750 million in late 2010, but has been struggling to bed down the purchase amid its own ambitious debt-funded expansion program in India, as well as difficulties in reviving Mr Stowe's former Collie-based mine.
It supplies the Bluewaters power station in Collie and has ambitious plans to expand the Griffin mine's annual output from four million tonnes to up to 20mt.
Most of that coal would be shipped to its stations in the power-hungry subcontinent, where the fuel is in fierce demand.
However, it faces a minimum $1.2 billion bill to build new rail links and a berth at Bunbury, prompting the fresh think on an equity injection.
A Griffin Coal spokesman confirmed it was in talks with a potential adviser, but would not comment on reports Macquarie Capital was close to being appointed.
"The company is in the early exploratory stages of determining ways to fund the Muja south expansion," the spokesman said yesterday.
Lanco's share price has recovered in recent weeks to about 15 rupees, but the company faces significant challenges.
These were underscored in WA Parliament last week when Collie MP Mick Murray said both Lanco and Chinese-backed Yancoal, the two foreign owners of most of the State's coal, were making losses amid low prices for their thermal fuel used in power production.
"They are big losses and I do not know for how much longer they can sustain those losses," Mr Murray said. "Both those companies have been to see me and have said that they cannot sustain the losses occurring in the coal industry.
"Forty per cent of the State's power is still produced by coal. That is something that people do not quite understand."
Lanco is also battling Perdaman Chemicals in a $3.5 billion case in the WA Supreme Court over an aborted coal supply agreement.