Green concerns making banks wary of CIL stake sale

17 Oct 2015

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India's plan to raise $3.3 billion (Rs21,368 crore) from selling a 10-per cent stake in Coal India Ltd (CIL) could be thrown off course as global investment banks are reported to be under pressure from environmental groups to steer clear of the share sale.

Several senior executives at foreign investment banks in Mumbai said ''green'' concerns had clouded CIL since its listing five years ago, and few were keen to take on a deal that could tarnish their public image, according to a Reuters report.

The pressure in a country where economic growth frequently trumps environmental concerns comes when many banks operating in India are under pressure to be more selective when it comes to roles that are heavy on staff but light on returns. The government pays a fee of just Rs1.

Banks' reluctance, say people directly involved in the sale, prompted the government this week to extend the deadline for bids from banks for a third time, and could make it tougher for New Delhi to narrow the fiscal gap.

The department of disinvestment, which oversees stake sales in state firms, has not given a reason for the extensions.

This time, the pressure from groups like Greenpeace is very intense, and ''no one is in a mood to take chances on a deal where you're not going to make money anyway'', said one senior investment banker at a foreign bank.

A second banker at a large European bank said he would struggle to get permission from his bosses. ''The pressure is building up,'' he said.

An official at the finance ministry, which oversees the disinvestment department, brushed aside concerns the share issue could be derailed, arguing environmental concerns had always been an issue for CIL.

But an individual close to CIL confirmed bankers and investors were under pressure from environmental campaign groups, and a third investment banker said the government was expected to call a meeting to discuss concerns over the sale.

''In the past six to eight months there has definitely been a movement against coal. These are mostly foreign banks and investors,'' said the person close to CIL.

New Delhi plans to use the proceeds from its stake sale programme to shore up its finances, and aims to raise Rs69,500 crore by March - a third of which would come from CIL.

The government, which owns 78.65 per cent of CIL, has raised Rs12,700 crore so far this year.

Indian banks take part in all large stake sales, but foreign banks, with their vast offshore networks, are crucial for successfully raising large capital, particularly abroad.

Global banks such as Bank of America Merrill Lynch, Credit Suisse Group, Deutsche Bank, Goldman Sachs, Citigroup, and Morgan Stanley worked on previous CIL share sales.

Credit Suisse, Morgan Stanley, Goldman, and Deutsche declined to comment, while Bank of America Merrill Lynch and Citigroup did not respond to a Reuters request for comment.

Campaigners at Greenpeace and the Rainforest Action Network (RAN), among the groups pressuring banks, said the banks were responding to sustained campaigns against coal and CIL.

Ben Collins, San Francisco-based campaigner for RAN, said the campaign was stepped up after CIL failed to meet environmental commitments made during its last share issue in January, which raised $3.6 billion, India's largest equity deal.

''It has been a continuation of a campaign to highlight the financial, social and environmental risks surrounding coal,'' said Ashish Fernandes, a Greenpeace campaigner. ''This is an indication Coal India hasn't really changed.''

Coal fuels 60 per cent of India's power production, but CIL is a sprawling, inefficient behemoth, consistently missing production targets and frequently battling accusations over worker safety and environmental damage.

Private equity-fuelled deals are on the up, and banks say state share sales tie up staff for months, leaving teams stretched and advisers out of pocket. The paltry fees also erode banks' pricing power in private sector deals, bankers say.

''When I'm getting the deals flow from the private side now why should I go and chase the government deals where I'm not going to make any money despite working on them for months,'' said the equity capital market head of a US-based bank.

 

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