Citi buy on JSPL foolhardy? Coalgate could go the 2G way

Citi has a buy rating for JSPL, which was in the news over the last few weeks for all the wrong reasons.

According to the brokerage, the inter-ministerial group’s recommendation to deduct the JSPL bank guarantee for the Jitpur coal block for delays in development has removed an overhang on the stock.

“With today’s decision, JSPL can now focus on development of the coal block and associated power project. JSPL, no doubt, will have to pay bank guarantee, but the amount involved is not large,” the brokerage said in a research report dated 18 September.

Has the global financial services major jumped the gun while giving a buy recommendation on a company which has been at the centre of the Coalgate storm recently?

There is no harm is thinking so, because the brokerage itself says “over the past few weeks, a number of these controversies (CAG report/CBI inquiry/IMG review) have been resolved partially”.

According to the brokerage, fear about the CAG report has waned as the report is in the public domain. There has been no recommendation to deallocate mines or levy windfall taxes. All true, but if Citi thinks the dangers are gone, it had better think again.

First, there is a public interest petition filed in the Supreme Court on the coal block allocation.

The apex court, which is hearing the PIL, had on Friday asked the Centre to “explain in eight weeks its policy guidelines on coal block allocation and the actual process adopted for 194 coal mines”.

According to a Times of India report , the bench of Justices RM Lodha and AR Dave hearing the PIL has observed that what was attempted was “not distribution of state properties in a small way”.

“It is mines of largesse, not even tonnes of largesse. By the way, is it a mere coincidence that so many politicians, their relatives or supporters were benefited in the 194 coal block allotments?” the bench asked solicitor general RF Nariman, according to the report.

There is nothing to guarantee that coal blocks will not go the 2G way - where all 122 licences issued by A Raja were cancelled, though the two issues are different.

Moreover, the political momentum built up for the cancellation of coal blocks has not only BJP support, but also of the Left and some other states.

Citi’s buy advice on JSPL may thus be discounting the future shocks too easily.