Korea Electric Buys 20% Bayan Stake for $515 Million to Expand Coal Supply

SEOUL-

Korea Electric Power Corp., South Korea’s largest utility, will buy a 20 percent stake in PT Bayan Resources for about $515 million to add supplies of coal used to generate half the electricity in Asia’s fourth-biggest economy. 

The Seoul-based utility will purchase 667 million shares of the Indonesian coal producer for 7,000 rupiah each, Korea Electric said in a regulatory filing today. That’s a 2.8 percent discount to Bayan’s close yesterday. The stock rose 0.7 percent to 7,250 rupiah in Jakarta. 

South Korea’s biggest coal acquisition this year follows the utility’s July 5 decision to buy a mine in Australia from Anglo American Plc for A$403 million ($357 million). The country imports almost all its energy needs and the government has said state-run companies may work with the nation’s $30 billion sovereign wealth fund to buy overseas energy assets. 

“Korea Electric will continue to step up overseas acquisitions before global economic recovery boosts global energy and mineral prices,” said Shin Ji Yoon, an analyst at KTB Securities Co. in Seoul. “These assets will help shield them from future price volatility and, in the long-term, make the company’s earnings more stable.”

Coal at Australia’s Newcastle port, an Asian benchmark, has climbed 12 percent to $96.20 a metric ton this year, according to data compiled by the McCloskey Group. Prices reached a record $192.50 a ton in July 2008. 

Coal Reserves

Korea Electric posted its second annual loss last year in its 26-year history because of higher fuel import costs. The company reported a deficit of 77.7 billion won in 2009 after a 2.95 trillion-won loss in 2008.

Bayan has about 1 billion tons of coal reserves in eight mines, and Korea Electric will share management control of the company, the utility said today. 

Korea Electric said the stake will give the utility 2 million tons of coal a year from 2012 and 7 million tons from 2015. After the purchase the company will source 34 percent of its coal needs from its own assets compared with 24 percent now, according to the statement. 

Korea Electric’s investments in Australia and Indonesia currently help supply 24 million tons of coal each year, according to the company. 

Shares of Korea Electric dropped 0.6 percent to close at 31,900 won, compared with the 0.7 percent gain in the benchmark Kospi index. The deal was announced after market close. Source: Bloomberg (21/7)