Coal IPOs Highlight Domestic Coal (BTU, ACI, ANR, KOL)

If you have any doubt about whether or not coal is yesterday’s fuel and renewables are tomorrows, two IPOs should point you at the right answer. Italy’s largest utility, Enel SpA, spun off its renewables unit and raised $3.1 billion at an IPO price that had dropped 20% from its initial range. The offering valued the new unit, Enel Green Power SpA, at about $11.2 billion. Share prices even fell 4% below the IPO price briefly.  On the same day, India’s Coal India offered a similar number of shares and raised about $3.5 billion. Share prices jumped 40% as more than 600 million shares traded hands on the first day. And the Indian government still owns about 90% of the shares.

Coal India controls virtually all of India’s roughly 65 billion tons of coal, the fifth largest of the world’s reserves, trailing the US, Russia, China, and Australia. US coal giants Peabody Energy Corp. (NYSE: BTU), Arch Coal Inc. (NYSE: ACI), and Alpha Natural Resources, Inc. (NYSE: ANR) hold coal reserves of about 9 billion tons, 3.9 billion tons, and 2.3 billion tons, respectively.

Coal India’s IPO was oversubscribed by more than 15 times. The divestment is part of the government’s plan to privatize some $9 billion in assets by the end of March 2011. Future sales include a follow-on offer from the state-controlled electricity transmission and distribution company Power Grid Corp. of India Ltd. According to The Wall Street Journal, other state-owned enterprises that could shed shares include Shipping Corp. of India Ltd., Hindustan Copper Ltd., Steel Authority of India Ltd., Indian Oil Corp. Ltd., and Oil & Natural Gas Corp. Ltd. So far, including the Coal India IPO, the government has raised $3.85 billion.

In addition to the strong sentiment in favor of coal, the expected capital inflows to India undoubtedly played a role in the success of Coal India’s IPO. The country’s currency has gained about 5% on the US dollar over the past 12 months, making India an opportunity for investors looking for offshore investments, whether in currency or equities.

The US coal companies are themselves having a good year too. There is strong demand for coal and the weak dollar makes US coal more attractive to foreign buyers. Peabody shares set a new 52-week high this morning of $58.10. Arch joined the party with a new 52-week high of $28.64. And the Market Vectors Coal ETF (NYSE: KOL) has also posted a new 52-week high of $42.73. Only Alpha is lagging, following a weak earnings report earlier this week.

Paul Ausick