1.

Brief History of Acquiring Company

Acquiring Company GVK Power and Infrastructure Ltd(GVKPIL) a Subsidiary of GVK
Groups
Founder:
Headquarters:
Revenue:
CFO:

Gunupati Venkata Krishna Reddy

Secunderabad
31.36 billion INR (2015)
Mr. A. Issac George (Director)

GVK is a leading Indian conglomerate with diversified interests across various sectors including
energy, resources, airports, transportation, hospitality and life sciences GVKs collaboration with
global infrastructure leaders has brought international expertise to India reflecting excellence and
advancement in all its endeavors.
In India. GVK has pioneered various infrastructure projects viz. setting up Indias first
Independent Power Plant (IPP), first six-lane road project and first Brownfield airport under the
Public Private Partnership model. GVK has developed two of the busiest airports in the country
namely, Chhatrapati Shivaji International Airport, Mumbai and Kempegowda International
Airport, Bengaluru handling 60 mppa and is developing two airports in Indonesia as well.
Sep 16, 2011 GVKPIL through GVK has acquired the Australian Coal Mines in Queensland with
8 billion tonne reserves and a capacity of more than 80 million tonne per annum for USD 1.26
billion. It will also set up a 500 km rail line and a 60 mtpa port as part of the 'pit-to-port' logistics
solution. The project envisages a total investment of USD 10 billion.
GVKPIL is one of Indias largest infrastructure developer with experience and expertise
spanning areas such as Energy, Airports, Roads and Urban Infrastructure. In addition, GVK is
also involved in many other businesses held by it privately including Real Estate, Hotels,
Pharmaceuticals, Resources, etc.
GVK is a socially responsible and an environmentally conscious organization that believes in
sustainable development. It undertakes all infrastructure projects with a commitment to minimize
ecological impact. It runs various social initiatives under the GVK Foundation for the overall
development of the society

2. Brief History of Target Company

Target Company Hancock Coal And Infrastructure Resources a Subsidiary of Hancock

Prospecting Pty Ltd (HPPL)
Founded:
25 November 1955
Founder:
Lang Hancock
Headquarters: Perth, Western Australia, Australia

Products:

Iron ore and thermal coal; and

Joint venture activities in
ferruginous manganese, uranium,
molybdenum, lead, zinc, gold,
diamonds, and petroleum

Hancock Coal Pty Limited

Hancock Alpha West Pty Limited
Hancock Prospecting is an Australian mineral exploration and extraction privately owned
company that holds the rights to some of the largest land leases in the Pilbara region of Western
Australia, containing the world's largest iron ore deposit. Established in 1955, the company is
chaired by Gina Rinehart, estimated to be the wealthiest person in Australia, and the daughter of
the company's founder, the late Lang Hancock.
Subsidiaries:

Since the discovery of iron ore by the companys founder Lang Hancock in 1952 and lifting of
the Federal Government embargo on iron ore exports in 1960, and the subsequent lifting of the
State Governments embargo on pegging land for iron ore tenements, a progression of 10 world
class iron ore mines (the first Tom Price in 1966) have been developed from original Hancock.
The Hancock Group of Companies are holders of numerous iron ore leases in the Pilbara. The
leases cover an area of 500 square kilometres (190 sq mi) predominantly in the Central Pilbara
region and contain mineable reserves of Brockman and Marra Mamba ore of over 850 million
tones.
It is owned by Gina Rinehart (76.6%) and the Hope Margaret Hancock Trust (23.4%).
In August 2016, former politician Sophie Mirabella is now the general manager of media
relations for this company.

Hancock Prospecting Pty Ltd (HPPL)

3. Transcation in Brief
Acquiring Company
Target Company

GVK
Hancock Prospecting Pty Ltd (HPPL)

Consideration

US$ 1.26 billion

The Consideration for the acquisition is US$ 1.26 billion to be paid in a phased manner to the
Hancock Group with US$ 500 million payable now at Closing (16 th sep 2011). Of the balance
amounts, US$ 200 million will be paid one year from Closing and US$ 560 million will be paid
on financial close for the project (anticipated to be in 2012) but in any event, no later than 3
years from Closing.
16th September 2011: GVK group, Indias leading infrastructure developer, confirmed
arrangements for the acquisition of a strategic part of large, high quality coal resource and
infrastructure development project in Queensland, Australia with an intent of furthering its
strategic interests in the natural resources and energy sectors.
GVK Coal Developers (Singapore) Pte Limited (GVKCDPL), a step down subsidiary of GVK
Natural Resources Pte Limited (GVKNRPL), (a GVK Group company) in joint venture with
GVK Power and Infrastructure Limited (GVKPIL) has entered into various acquisition
documents with Hancock Prospecting Pty Limited and certain of its affiliated entities (the
Hancock Group) to acquire
a shareholding up to 79% in the Alpha (Tads Corner) and Alpha West (Pauls Corner)
Coal Projects, located in the Galilee Basin in Queensland. Hancock Group retains the remainder
of the shareholding;
a 100% shareholding in the Kevins Corner Coal Project, located immediately adjacent to
Alpha; and
a 100% shareholding in the rail and port project connecting the above coal projects to the port
of Abbot Point and Abbot Point T3 expansion project, whilst retaining some tonnage capacity for
the Hancock Group

The funding for the acquisition is tied up with banks. The financing documents for
funding the acquisition are being executed with the banks and the transaction is expected

to Close and assets transferred in about two weeks. To organise the initial funds, GVK
has approached some foreign and Indian banks such as Standard Chartered and ICICI.
Ernst & Young Private Limited was the sole Financial Advisor to GVK for the acquisition
and Amarchand & Mangaldas & Suresh A. Shroff & Co. has acted as the Legal Advisors
to GVK and Minter Ellison Lawyers has acted as Australian Legal Advisors to GVK.

4. Some of the key highlights of the project are:

The coal project consists of a 7.9 billion tonnes compliant with Australias Joint Ore Reserves
Committee (JORC) resource categorization, with 3.3 billion tonnes reserves in Measured +
Indicated categories and with potential for more tonnage
The infrastructure project involves the development, ownership and operation of an integrated
infrastructure development consisting of a 495 km rail line and a 60 million tonnes per annum
port at Abbot Point.
At full production the three coal projects are together expected to supply about 84 million
tonnes per annum to the global sea-borne coal market. The first phase of production, expected
to start in 2014, envisages a total production of over 30 million tonnes per annum of high quality
thermal coal.
The coal mines will deliver a very high quality thermal coal with a Gross Calorific Value (as
received) of about 5800-6000 kcal/kg and low ash and low sulphur content.
The total investment in the first phase is estimated at approximately US$ 10 billion. This
includes capital expenditure on the mines, rail line and port.
Most of the coal from the project is intended for delivery into the Asian region as Letters of
Intent for approximately 45 million tonnes per annum have already been signed or are in the
process of finalization with major utility companies in China, Japan, Korea, Taiwan and
Vietnam.
It is envisaged that GVK Energy, a subsidiary of GVKPIL will enter into a long-term coal
supply contract for up to 20 million tonnes per annum.
This is the only project in the Galilee Basin with a rail declaration, port allocation, native title
and cultural heritage agreements for the entire project and Hancock is the only developer as on
date to have actually mined, processed and transported coal proving the robustness of the
Bankable Feasibility Study assumptions and the projects coal quality via international markets
agreeing to conduct commercial scale trial burns.
The projects are undergoing environmental assessment under the Alpha Project's EIS - the
Alpha Project was declared a 'significant project requiring an EIS' under the State Development
and Public Works Organisation Act 1971. The final approval is expected by the end of the year.

5. Objectives of GVKPIL
Initially GVK Natural Resources Pte Limited(GVKNRPL) will hold 90% and GVK Power and
Infrastructure Limited(GVKPIL) will hold a 10% stake in the projects. GVKPIL has an option to
increase its stake upto 49%, subject to necessary approvals from the Foreign Investment
Review Board (Australia).
This acquisition offers the following benefits to GVKPIL:
An option to enter into long term coal supply contracts, for the purchase of up to 20
million tonnes per annum (to supply around 7,500 megawatts of power generating
capacity). GVKPIL and its subsidiary GVK Energy have been aggressively trying to
secure fuel supply agreements in an energy deficient market for its proposed power
plants. This will allow GVKPIL to secure adequate fuel supplies for GVK Energy
Limited into the foreseeable future.
India holds 10 percent of the world's coal reserves, but local supplies are falling short of
demand as the country builds more power plants, and as domestic coal projects run into
environmental and land acquisition delays
An option to take a lead role in GVK Coal Infrastructure (Singapore) Pte Limited, the
company that will own the rail and port projects, on mutually agreed terms with
GVKNRPL.
It is envisaged that GVK Energy, a subsidiary of GVKPIL will enter into a long-term coal
supply contract for up to 20 million tonnes per annum.
Relatively low sovereign risk compared to other neighbouring international jurisdictions
First integrated coal pit to port supply chain in Australia
Most advanced Project in the Galilee Basin by a number of years
Calibre of management team
Advanced approval status
Solid order book with Alpha over 100% of coal production subscribed into South East
Asia
Strong growth fundamentals for the seaborne thermal coal market
The GVK Group and the Hancock Group wish to secure long term relationship through
this joint participation and in order to strengthen this relationship, the GVK Group has
invited Mrs. Georgina Hope Rinehart to join the board of GVKPIL as a non-executive
director.
GVK Power believes that this deal will make a significant contribution to the overall
GVK portfolio and will also increase shareholder wealth

6. Objectives of Hancock Prospecting Pty Ltd (HPPL)

The timing of this sale is close to the peak in the thermal coal price cycle, with 2011 being the
second highest year for the thermal coal price in a century. Hancock Prospecting booked an
A$1,103 million after tax gain in the 2011/12 year as a result. Netting off Queensland coal
project development costs expensed in prior years (e.g. an A$103m net loss in 2010/11), this
still leaves close to a A$1bn net gain overall for Hancock Prospecting.
Umang will write pg 44
Hancock Prospecting had plans for export agreements with numerous interested parties. It was
reported in 2011 that
Korea South-East Power Co and Chinas Zhejiang Provincial Energy Group Co had signed nonbinding letters of intent and satisfactorily tested the coal from the Alpha deposit in commercial
quantities.So it was very necessary for them to drive these projects.
The Galilee Coal Basin has very significant coal deposits, but is well inland far away from both
railway and export
port facilities. The area is also far away from a major population base (an issue in terms of access
to skilled labour) and lacks basic power and water infrastructure.They didnt have the capability

7. Method Followed For Acquiring

Acquisition in general sense is acquiring the ownership in the property. In the context
of business combinations, an acquisition is the purchase by one company of a
controlling interest in the share capital of another existing company.
The Acquisition of Hancock coal by GVK Power and Infrastructure Ltd was an
friendly acquistion
Friendly takeover Before a bidder makes an offer for another company, it usually
first informs the company's board of directors. If the board feels that accepting the
offer serves shareholders better than rejecting it, it recommends the offer be accepted
by the shareholders.
GVK Vice Chairman Mr. G V Sanjay Reddy said, This will be a landmark deal in
the economic co-operation between India and Australia and we are proud to be the
group, together with our new friends at Hancock, that will be responsible for opening
up the Galilee Basin and the creation of significant infrastructure and new jobs in
Queensland. We look forward to working closely with the local, state and federal
governments in promoting the economic development of Australia. Also most
importantly we look forward to the opportunity of working with Mrs. Gina Rinehart
as our partner in Alpha and Alpha West.
Mrs. Georgina Hope Rinehart, Chairman, Hancock Group said, "We are delighted
that this project will be to the best of our knowledge the largest project to date to be
undertaken by both Australian and Indian companies. We would like to congratulate
Dr GVK Reddy and family on this, the biggest deal we know of between Australia
and India. We are delighted to be working with Dr GVK Reddy and G V Sanjay
Reddy and GVK and we are also very pleased with this strategic alliance with a
country (via GVK) that needs our coal and which should help to propel these mines to
successful development and on-going operations over decades. We wish GVK all the
best for this world class and very exciting project".
As part of the deal Gina Rinehart, Chair of Hancock Prospecting, was invited to join
the board of GVKPIL as a non-executive director. To date this invitation has not been
accepted.

8. Consideration

9. Post Acquisition Effects

 GVKPIL is a company that describes itself as a leading global infrastructure owner,

manager and operator. Prior to investing in GVK Coal, GVKPILs entire focus of
operations was within India. That is, they did not own any noteworthy business outside of
India. GVKPIL does have an office in Indonesia, having won a contract relating to
building two Greenfield international airports, but has neither revenues nor substantive
asset base there. To claim the company is a leading global operator is an overstatement of
the firms international experience. There are significant cultural, staffing, political,
financial and environmental risks to this project the largest of its kind in Australian coal
mining history.
The massive scale, speed and scope of GVKPILs expansion has put the company in a
highly leveraged position, raising serious alarm bells about the prudence and viability of
GVKs commitment to raise the US$10bn capital cost of the Alpha Coal, Rail and
Terminal Project. With a market capitalisation of only US$243m as of march 2013,
GVKPIL has a net debt of US$2.8bn. As a result, it will be increasingly difficult for GVK
Coal to raise the finance for the Alpha Coal Project.

 In March 2013 GVK Coal signed a non-binding memorandum of understanding with

Aurizon Holdings (Australias largest listed rail freight company) whereby Aurizon
would fund a 51% stake in the rail and port development assets.
GVK had acquired 100 per cent of the Kevin's Corner coal deposits and 100 per cent of
the Hancock rail and port infrastructure projects, plus a 79 per cent stake in the Alpha and
Alpha West coal deposits. The payment was staggered over three years with the last
tranche of $560 million to be paid by September 2014. The deadline was extended as coal
prices fell sharply and there were no other takers. GVK was targeting production by 2014
April 7 2016, GVK has failed to pay the final tranche of $560 million to the Australian
billionaire Gina Rinehart-owned Hancock Prospecting, putting a question mark over the
future of the project. The difficulty of the GVK group in paying for acquisition or
developing the project stems from the fact Chinese coal imports have dropped 20.1 per
cent, year on year, in the first two months of 2016 following a 30.4 per cent decline in
2015.Besides, China Shenhua has announced that its coal exports will grow fivefold in
2016 and China will return to being a net exporter from being the world's largest
importer.
Indian coal imports have dropped 15 per cent in 2015-16 and Coal India has reported its
highest ever production during the year.
All these factors were making Australian coal mine projects unviable. Besides, there is
stiff opposition from local environment activists against the project.

10. GVKPIL Stock Performance

(2008-2013)
Announcement of GVKPIL
and Hancock coal acquisition

GVKPIL Return on Equity averaging 1% pa and declining

GVKPIL delivered a return on book value of equity of 5.7% in 2009/10, then 4.7% in
2010/11 and 1.8% in 2011/12, before falling to negative 10.1% in 2012/13 on the back of
a net loss for ordinary shareholders of Rs3.4bn (US$62m).This is well below cost of
capital, and declining.
GVKPIL Share Price significant and sustained underperformance
The share price of GVKPIL over the last five years relative to the iPath MSCI India
Index ETN (code: INP).A significant and sustained underperformance is clear, with
GVKPIL underperforming the Indian index by 80% in this period. GVKPILs market
capitalization has been reduced to US$243m.This makes any prospective equity raising to
pay down some of GVKPILs US$2.8bn of net debt highly dilutive to existing
shareholders and therefore highly unlikely. This financial leverage will also significantly
inhibit GVKPILs ability to raise further debt or project financing for its US$20bn
pipeline of new projects.