Tim Buckley has spent a lot of his profession in finance traversing the proverbial vitality panorama.
For a lot of that point since 2010, these travels have taken him to India, the place eye-watering sums of cash are being spent energising a rustic attempting to carry greater than a billion individuals out of abject poverty.
Mr Buckley, though an admirer of India in some ways, says there’s an expression that defines key points of enterprise on the subcontinent.
“What I’ve discovered over my final decade finding out India is that the Indian monetary system has loads of warts,” stated Mr Buckley, director of Local weather Vitality Finance.
“And doubtless the largest wart is the inevitable Indian over-reliance on kicking the can down the street.”
The quirks and pitfalls of Indian finance may appear a world away from the common Australian.
However for greater than one million households and companies dwelling on one facet of the nation, they’re quickly turning into all too actual.
Griffin Coal, which is certainly one of Western Australia’s solely two coal mines and an important hyperlink within the state’s primary electrical energy grid, is broke.
The loss-making enterprise was tipped into receivership a little bit over a month in the past, owing about $1.5 billion to a long list of lenders and creditors.
None is owed almost fairly a lot as an establishment virtually unknown exterior its house nation.
So, who is that this thriller participant, and why does it maintain WA’s energy in its fingers?
Big unknown exterior India
For all its obscurity to most Australians, India’s Industrial Credit score and Funding Company, in any other case generally known as ICICI Financial institution, is in actuality a behemoth.
The privately owned financial institution, based in 1994, has a market capitalisation of greater than $110 billion.
It has loans on its books valued at greater than $1 trillion.
“It [ICICI] is the biggest non-public sector financial institution in India,” Snehal Kamdar, a chartered accountant and insolvency practitioner primarily based in Mumbai, stated.
The financial institution got here on to the scene at Griffin in 2010 when a as soon as high-flying Indian conglomerate, Lanco Infratech, shelled out $750 million for the mine.
Lanco’s massive foray into Australian vitality was fuelled fully by debt and most — if not all — of that cash was offered by ICICI.
But proper from the get-go, persistent issues grew to become apparent.
“It has been a debacle,” Mr Buckley stated.
“There have been no winners.”
Griffin’s former proprietor, Ric Stowe, lost his business empire when prices for the mine’s coal were roughly halved overnight.
In taking on the mine, and paying a “huge” premium to do it, Lanco had left itself caught with contracts that ensured it misplaced cash on virtually each tonne of coal it equipped to clients.
What’s extra, formidable plans to ship out 20 million tonnes a yr of Griffin’s coal to India went nowhere when the insurmountable prices and logistics grew to become obvious.
From there, Lanco’s woes solely deepened because the losses at Griffin mounted and the conglomerate’s money owed to ICICI piled up.
One hassle results in one other
In 2017, Lanco grew to become the highest-profile casualty of a shake-up by the Indian authorities of its chapter legal guidelines, toppling into liquidation.
Critically for WA, the collapse left one of many state’s most strategically necessary vitality belongings in limbo.
By means of its greatest buyer, the Bluewaters coal-fired energy station, Griffin not directly provides about 15 per cent of the ability sometimes utilized in WA’s greatest electrical energy system.
Griffin additionally provides ASX-listed miner South32, whose Worsley alumina refinery, an enormous regional employer, depends upon the coal.
Mr Buckley stated Lanco — and by extension ICICI — did not do its due diligence.
“Bear in mind, the unique motive for getting Griffin Coal wasn’t to produce the West Australian coal-fired energy crops,” Mr Buckley stated.
“It was really to export 20 million tonnes a yr from the port of Bunbury over to India.
“So it was really an edict from the central authorities of India and 10 of India’s largest conglomerates went out and purchased coal and gasoline deposits all over the world.
“However they actually have been late to the social gathering.
“So, they actually received the dregs.
“Griffin Coal was one of many worst of the offers and, clearly, India by no means received a single tonne of coal out of it.”
Griffin’s monetary woes have intensified since 2017, and so too have its manufacturing issues.
Final yr, Griffin invoked force majeure – the so-called God clause – to suspend coal deliveries to Bluewaters, blaming a wetter-than-usual winter for the choice.
It repeated the dose this yr.
Determined wants, determined deeds
In a bid to assist cope with these and different disruptions at Griffin, the rival Premier Coal mine stepped in at a number of factors to offer back-up provides, whittling down its personal stockpiles in doing so.
Premier, although, is now dealing with its personal issues following one other wettish winter, declining coal reserves and at the least one main security incident.
The upshot is a critical shortage of coal in WA, the place South32 is having to import coal from overseas.
Equally, state-owned energy supplier Synergy can also be seeking to purchase coal from the jap states, whereas mothballing an enormous generator to protect gasoline shares.
Regardless of proudly owning about 80 per cent of Griffin’s debt, ICICI has maintained a stony silence about its publicity to and plans for the mine.
Mr Buckley stated the silence was symptomatic of a banking system the place loans that flip unhealthy have been usually swept underneath the carpet.
“Insolvency may be fairly onerous nevertheless it’s all about lancing the boil,” Mr Buckley stated.
“In Australia … if a enterprise is financially bankrupt, you may then salvage the working belongings, recapitalise them after which allow them to get on with it.
“Whereas in India … kicking the can down the street can usually go on for 5 or 10 years, which is actually weird by Australian requirements.
“However it’s illustrative of what is occurred to the previous Ric Stowe empire during the last decade.”
Abroad growth ‘backfires’
Hemindra Hazari, a Mumbai-based banking analysis analyst, stated Indian banks usually would not disclose particular person loans, irrespective of how badly they carried out.
However to grasp how ICICI may have ended up with a busted Australian coal mine, he stated it was essential to know Indian’s current historical past.
Mr Hazari stated that previous to the collapse of Lehman Brothers and the worldwide monetary disaster, India’s central authorities had inspired the titans of native business to broaden their abroad footprints.
To do that, he stated, they moved in lock-step with banks identical to ICICI to snap up international belongings, usually at prime worth.
“Now, what occurred is … the financial system turned globally post-Lehman,” Mr Hazari stated.
“So, a number of these belongings, which had been acquired at excessive costs … all of them collapsed.
“A number of different Indian firms have been unable to satisfy their commitments.
“It resulted [in] issues for his or her lenders.”
In keeping with Mr Hazari, Lanco was in some methods the poster little one of India’s company misadventures abroad.
However within the broader fallout, he stated many Indian firms – and their bankers – have been pulling again from the worldwide scene.
“That total technique has backfired,” he stated.
A riddle wrapped in a thriller
Insolvency practitioner Mr Snehal stated Indian legislation was clear sufficient about loans that soured and the nation had considerably strengthened its chapter provisions.
He stated insolvency legal guidelines required “non-performing loans” to be written off after three years and there have been probably felony penalties for a failure to take action.
“There can’t be a lapse in recognition of huge losses,” Mr Snehal stated.
“It is critical.”
Nonetheless, he acknowledges that India just isn’t a signatory to worldwide cross-border insolvency legal guidelines, a scenario which can be including ever extra complexity to the Griffin case.
Amid the uncertainty, no matter steps ICICI may take subsequent are seemingly identified solely to the financial institution, which declined to answer questions.
Since taking the reins at Griffin 5 years in the past, ICICI has not made a single reference to its publicity to the mine in any public disclosures.
Issues usually come to gentle solely by way of the courts, the place in September ICICI fought off a bid by Bluewaters to take control of the mine and as an alternative appointed its personal receiver.
Consultants say the simultaneous appointment of a liquidator additionally factors to the chance Griffin could tear up its loss-making contracts with clients – together with Bluewaters – to demand a far increased worth for its coal.
The place this leaves shoppers is unclear.
‘No comfortable ending for anybody’
Mr Buckley, at the least, is certain it will not be anyplace good.
He stated a technique or one other, WA was heading right into a probably scorching summer time with its greatest electrical energy system dangerously weak to a scarcity of coal provides.
Even when ICICI accepted its losses and walked away from the mess at Griffin, he stated the deeper issues that had been allowed to fester within the state’s coalfields weren’t going away.
Within the occasion the financial institution may claw again a few of its funding, he stated, that worth would ultimately be handed on to the patron.
In the end, Mr Buckley stated the individuals of WA will find yourself paying.
“If you’re beginning with a mine that has barely damaged even or misplaced cash virtually yearly for a decade, there is no such thing as a cash,” he stated.
“There may be not a pot of jam on the finish of the day.
“Absent the state-government nationalisation of all of the loss-making entities, there is no such thing as a comfortable ending for anybody.”