Societe Generale Joins Global Bank Move Away from Financing Galilee Coal

Tim Buckley, IEEFA, 8th December 2014

Citing ongoing delays, Societe Generale of France is the latest of nine global banks to move away from financing Galilee Basin coal projects, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

“At some point these highly geared Indian conglomerates will acknowledge there is no point sinking more good money after bad. The opportunities and needs emerging in the transformation of the domestic Indian power sector are enormous. Why pursue commercially unviable thermal coal export projects stranded in the middle of Australia?” Tim Buckley, Director of Energy Finance Studies Australasia at IEEFA said.

On Friday 5 December 2014 Societe Generale released the tweet: “In the context of the Alpha Coal project’s delay, Societe Generale has decided, in agreement with GVK-Hancock, to suspend its mandate. The bank has therefore no involvement with the project.”[i]

“Having paid top dollar to acquire these project proposals at the peak of the cycle in 2011, the Adani and GVK groups both forecast first coal by 2014. With 2015 rapidly approaching, neither project is even near financial close, let alone ready to break ground,” Mr Buckley said.

“These two A$10bn plus Galilee coal proposals are commercially unviable and financially unbankable. Any project undertaken is highly likely to end up as a stranded asset as the rest of the world transitions to lower carbon solutions. Seaborne thermal coal has entered structural decline,” Mr Buckley said.

The US-China Agreement combines with India’s articulation of their new energy plans to cease importation of thermal coal serves to cement the structural decline of seaborne thermal coal. [ii]

This follows UK Energy Secretary Ed Davey warning on the same day that fossil fuel companies could become “the sub-prime assets of the future… Investing in new coal mines is going to get very risky”.[iii]

“Nine of the largest global financiers have already said they wont provide financing to the Galillee projects,” Mr Buckley said. These include: Deutsche Bank; HSBC; Royal Bank of Scotland; Barclays; Morgan Stanley; Citigroup; Goldman Sachs; JP Morgan Chase; and now Societe Generale.

The recent Australian Conservation Foundation paper highlights that reputable global banks will each be evaluating if, as a signatory to the Equator Principles, they can justify financing greenfield coal projects in Queensland’s Galilee Basin.[iv]

IEEFA questions how the proponents and the Queensland government can consider the current capital structures of GVK’s Alpha project, alongside the other major Galilee Basin coal mega project, Adani’s Carmichael proposal, as either prudent or remotely bankable. Adani Mining Pty Ltd has over A$1bn of debt and negative shareholders equity, Adani’s Abbot Point Terminal was 90% debt funded with over A$2bn of debt. Meanwhile, the GVK group was not even able to make the final US$560m payment on its entirely debt funded purchase that was due in September 2014. All three of these Australian coal ventures have continued to report losses since their respective acquisitions in 2010/11.

IEEFA’s December 2014 report, “Stranded Out West: The imminent failure of Lanco Infratech’s investment in Griffin Coal” highlights the similarities of these two Galilee proposals with that of Indian conglomerate Lanco Infratech in Western Australia. Lack of Australian market or coal mining experience, ongoing losses, excessive financial leverage, consistent delays, local community opposition and a reliance on state government subsidies are all common themes.[v] IEEFA views Griffin Coal as likely to re-enter Administration within months, joining Bandanna Energy and setting the precedents for stranded assets.

Tim Buckley is the Director of Energy Finance Studies, Australasia for the Institute for Energy Economics and Financial Analysis. He has 25 years of financial markets experience, including 17 years with Citigroup culminating in his role as Managing Director and Head of Australasian Equity Research.

 Mr Buckley has spent the past five years investigating the trends in global renewable energy and as a result questions viability of the Galilee developments.

 Tim has produced detailed reports on Lanco Infratech, GVK and Adani, plus the Indian electricity sector.