Tata terminates Olympus Capital deal

In July, Olympus penned a deal to buy $300 million worth of shares in Tata Power's coal special purpose vehicles (SPVs) Bhira Investment Ltd. and Bhivpuri Investment Ltd., taking a 14-15% stake in the SPVs issued through fresh shares with differential rights. Olympus, which made the investment from its Olympus Capital Asia III fund, had no dividend rights for five years, but its shares would be convertible into regular shares after such time.

Both SPVs hold interests in Indonesian coal mines Kaltim Prima Coal (KPC) and Arutmin, which were purchased from PT Bumi Resources Tbk in 2007 for $1.2 billion, giving Tata an overall 30% stake. Bumi would remain the majority shareholder with 70%. Under these appropriations, the deal between Tata and Olympus Capital gave the PE firm valuable access to Indonesia's burgeoning mining sector. According to the 2009 BP Statistical Energy Survey, Indonesia is the third-largest exporter of steaming coal in the world, following Australia and China, and while foreign investment into Indonesia had become more prolific across many sectors, regulatory changes and risks had adversely impacted mining investment.

Yet the deal, which was one of the larger private equity agreements in India of 2010, came to an abrupt end without much explanation or clarity. Tata announced the deal's breakdown via a statement to the Bombay Stock Exchange, noting that specific conditions have not been met by the PE firm. It did not elaborate on these conditions, but stated that, "the conditions precedent as stated therein were not fulfilled by the long stop date. The company, Bhira and Bhivpuri have exercised their rights under the investment agreement and have terminated the investment agreement on January 01, 2011."

The deal's breakdown further confuses as Daniel Mintz, Founding Managing Director of Olympus Capital, had told AVCJ that the agreement was financial, and that Olympus did not seek minority interests. "It's important to recognize that we're not entering this as a strategic seeking an off-take agreement from the mines," Mintz said in July. "It's a financial transaction that enables Tata Power's Coal SPVs to raise capital to be used for additional acquisitions or debt paydown."

Local reports revealed that the SPVs had a combined debt of $675 million as of July, and the $300 million capital injection was to be used to fund future acquisitions and investments as well as alleviate the debt burden. Following the deal's collapse, reports suggested that the dispute may have boiled down to valuations, with Tata hoping that reassessing the deal would pull in an investor willing to set different terms. That notion has not been substantiated.

Neither Tata Power nor Olympus Capital responded to further queries on the deal, though Tata Power indicated to local media that it will consider new investors to replace Olympus.

The deal's surprise termination is a departure from the optimism previously projected by the companies. In a statement issued in July, Tata had even suggested that the partnership could expand. "We are excited about this strategic partnership with Olympus Capital, which we hope to expand into other areas of common interest given their on-the-ground teams throughout Asia and expertise in the energy and power sectors," said Prasad Menon, Tata Power's Managing Director.

According to global reports, the price of coal has rocketed in key markets worldwide, with Asia Pacific's prices further exacerbated by natural disasters in the coal-rich market of Australia.

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• Topics
• South Asia
• Deals
• Southeast Asia
• Olympus Capital Holdings Asia
• Daniel R. Mintz