Indian power groups' shares surge on hope of coal rights reversal

Shares in Indian industrial groups including Adani Power and Tata Power surged on Monday, after the country's government argued that they should be allowed to keep coal mining rights declared illegal by India's supreme court last week.

The court said last Monday that more than 200 mining licences had been illegally awarded to dozens of private sector groups, hitting stocks in companies including aluminium group Hindalco and billionaire Anil Ambani's Reliance Power.

The latest twist in India's so-called "coal scam", which began two years ago with allegations of impropriety in the handling of coal rights dating back to 1993, alarmed investors. It raised concerns about the possible outright cancellation of coal rights.

However shares in groups hit by the ruling rallied on Monday when a senior Indian minister argued at a supreme court hearing that the companies should be allowed to keep any mines that were already producing coal, or which were close to doing so.

Attorney-general Mukul Rohatgi said that 40 of the more than 200 mines declared illegal were already in operation, while 6 were close to beginning production. Rights to the remaining mines could potentially be re-auctioned, he added.

Jindal Steel and Power, the coal owner most affected by the original supreme court ruling, rose 6 per cent on the news. Shares in Adani Power, owned by billionaire Gautam Adani, closed up 6 per cent, while Reliance Power, Tata Power and Hindalco also ended higher.

The supreme court gave no indication of its plans for the coal blocks, saying only that it would hold more hearings next week.

Support from India's government nonetheless comes as welcome relief to the coal-owning groups, after a torrid week in which the likes of Jindal Steel and Power lost more than a fifth of their market value on fears of abrupt cancellation.

Amitabh Dubey, director of research group Trusted Sources in New Delhi, said keeping already operational mines was "the best case scenario for the industry", even if industrial groups had to pay a fine or other penalty.

"The court has declared these allocations illegal, so it would be a clear win if companies with operational mines are allowed to keep them, especially if those which are close to production are also included," he said.

However critics of India's previous system of coal allocation, including anti-corruption groups who brought the legal case that prompted last week's supreme court ruling, were likely to challenge such an outcome, analysts said.

One analyst, who asked not to be named, said: "There will also be other miners who argue that it is unfair if some get to keep non-producing blocks and some don't . . . So we'll have more hearings, and I think this is going to drag on for a while now."

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