More offers could emerge for CIC Energy-Analyst

| Monday October 4, 2010 00:00

CIC would not disclose the name of the mystery Indian company that had offered to acquire it for $8,50 a share, or a total of C$450-million, because of a confidentiality agreement.

Plaster said in a research note that it could take a while for any firm offer to materialise, and that there was no guarantee one would, as the Indian conglomerate still had to conduct a due diligence.

“The due diligence work could take at least a month or more, followed by the negotiation of a definitive agreement, which could be another month or more. If an agreement can be reached, a shareholder circular would then be sent out, meaning that the shareholder vote may not occur until early 2011,” he said. CIC , which owns the Mmamabula coal-fired power project in Botswana, announced on September 15, that it had received a proposal from an unnamed Indian firm to buy the company and had established a special board committee comprising independent directors to consider the bid.

Plaster said that Salman Partners had seen CIC as a takeover target, but that a bid had come sooner than expected.

“We expect that CIC will attempt to use this Indian proposal to flush out bids from other interested parties,” he noted.

The “most logical” potential competing bidders that Plaster put forward included China’s Shanghai Electric Group, Golden Concord Group and International Power plc.

Shanghai Electric had won the contract to build the 1, 200-MW Mmamabula power station, Golden Concord ---also China-backed ---was CIC’s partner in the planned 300-MW Mookane domestic power project, and International Power was the planned operating partner for Mmamabula.

“If other prospective bidders for CIC emerge, and it turns into a competitive bidding process, a premium to net asset value could ultimately be realised,” said Plaster. Salman Partners gave CIC a net asset value of C$9,94 a share.

The companies’ share price jumped when the Indian proposal was announced, rising from around C$3 a share to the current level of C$6,14. Even if the current offer were to be unsuccessful, Plaster said the company offered investors significant upside potential. “We believe that significant upside potential still exists for patient investors for several reasons,” he said. These included the potential for risk to be removed once the South African government released legislation paving Erica Belling the way for a power purchase agreement with CIC to be reached, further upside from Mmamabula’s potential coal exports, and the possibility that other bidders could emerge.

Plaster raised CIC’s target price to C$8 a share, from a previous C$5, giving the stock a speculative buy rating.CIC spokesperson declined to name the Indian bidder or comment whether the company had received interest from any other potential acquirers. CIC last month announced it had inked a shareholders’ accord with Botswana Power Corporation and Golden Concord to build the 300 MW Mookane domestic power project at an estimated cost of $800-million. CIC would own 30 percent of the project, with Golden Concord holding the remaining 70 percent. Commercial operations would begin in the first half of 2013. The larger Mmamabula was still on hold, pending a power purchase agreement with the South African government.

The plant could start generating power by 2015, if an agreement was reached soon, according to CIC’s website.-(Miningweekly)