Corporate India: going global

Economic liberalisation has produced a wave of Indian investment abroad. Sundeep Tucker and Joe Leahy report in today's Finnacial Times that Corporate India is finding confidence to go global. Here is an excerpt:

Corporate India, which for decades was content to stay at home, its domestic markets protected from foreign competition, has recently embarked on an overseas spending spree.

Fuelled by a booming economy and access to cheap international finance, deal sizes and volumes are growing ever larger. Bankers and advisers predict that the first $1bn (£530m, €785m) overseas acquisition outside the state-controlled energy sector could be around the corner.

“Five years ago we were representing multinationals and advising on their entry strategy into India,” says Manisha Girotra, head of investment banking for UBS India. “Now our biggest business is advising Indian companies to go global. Ten years ago they were so nervous about operating anywhere outside home territory. Now, every CEO who I meet wants to talk about global strategy.”

According to Dealogic, the data provider, in the first nine months of 2006 Indian companies announced a record 112 foreign acquisitions, with a combined deal value of $7.2bn. Last year’s deals totalled $4.5bn, which itself was treble the figure for 2004.

The gap between outbound and inbound merger and acquisitions activity in India has never been narrower. In the nine months to September 30, there were 220 inbound deals with a total value of $8.6bn. While the average overseas deal size has grown to $66m, some recent deals are worth half a billion and up.

In February Dr Reddy’s Laboratories, a generic drugs maker, acquired German rival Betapharm for $572m, while in May Suzlon Energy, which makes wind turbines, spent $548m on Belgium’s Eve Holdings.

In the summer Tata Tea, the owner of brands such as Tetley, spent $677m to acquire a 30 per cent stake in Glaceau, a US-based maker of “enhanced water” drinks. Last month India’s Videocon, a manufacturer of home appliances, teamed up with US fund Ripplewood to acquire South Korea’s Daewoo Electronics for $700m.

But what is driving the trend and how sustainable is it? What strains is it placing on balance sheets and management capabilities? The answers matter because, if the trend accelerates, it has the potential to transform industries around the globe including resources, IT, healthcare and auto parts manufacturing.

Among the biggest drivers is access to historically cheap capital. Indian interest rates have tumbled to around half their level of a decade ago. Thanks to deregulation, Indian companies can also borrow cheaply on international debt markets, while booming local exchanges provide another source of capital.

K.V. Kamath, chief executive of ICICI Bank, says that the increasingly outward focus of Indian companies has been driven by easier access to capital, better corporate structures that have allowed them to leverage their balance sheets and greater confidence on the part of lenders. ...“Three years back nobody talked of more than $25m. Today a billion dollars is talked of fairly routinely. The confidence level is going up dramatically.”

This has received a further boost with the $38bn takeover of Arcelor by Lakshmi Mittal, the UK-based but Indian born and raised steel tycoon. While he built his fortune almost entirely overseas, “he’s certainly regarded by anyone here as Indian, and that’s had a big impact on confidence”, says Frank Hancock, managing director at ABN Amro India.

Alan Rosling, a director of Tata Sons, the holding company of the Tata Group, traces the roots of Indian competitiveness to the dismantling in 1991 of the so-called “Licence Raj” – the socialist-era system of regulations and quotas that shielded selected domestic businesses from outside competition. He says: “The 1990s was the period in my mind when huge changes were forced on Indian industry and the good news is: Indian industry responded.”

For some, such as Mr Kamath, there is also another reason for the rise of a new breed of low-cost, highly competitive Indian companies capable of making successful acquisitions abroad.

The boom in the IT outsourcing, pharmaceuticals and other “knowledge” industries, particularly since 2000, created a new class of high-income professionals. This, he says, led to increasing remittances into the rural areas from people employed as helpers, drivers or in other roles by the new class of professionals. As both groups began spending their money, industries such as telecommunications, financial services, property, retailing and the domestic automotive sector took off.

At the same time, India’s manufacturing industry underwent a revival, helped by historically low interest rates. Manufacturers began restructuring their debt, rebuilding their balance sheets by injecting more equity, and overhauling their factory processes to improve productivity and quality.

Mr Kamath says these factors have created a new “eco-system” for business in India. For example, Indian companies are today the lowest-cost telephony and internet providers in the world. Domestic banks have the lowest cost of technology per transaction, which he estimates at one-tenth that of western groups.

...This new environment was enabling Indian companies to go abroad, he says. “For the first time people are going out and competing and buying overseas. Now, you would not acquire unless you are competitive in your home country. This is a remarkable change that has happened.”

...Munesh Khanna, head of investment banking, M&A at DSP Merrill Lynch in Mumbai, says he expects to see larger overseas deals coming from the pharmaceutical or automotive sectors in the coming year. He predicts that the potential break-up of companies such as Delphi, GM’s automotive components supplier in the US, would be closely watched by their Indian peers.

While Indian companies currently lack the scale for very large acquisitions, they could team up with private equity firms and use leverage to take over bigger targets. “Next year I expect we should be seeing a couple of deals in the billion-dollar range,” says Mr Khanna.

...One noticeable feature of India’s overseas expansion is its focus on Europe and the US. Mr Khanna says that is due to cultural factors that give Indian chief executives an affinity with the west. “An Indian businessman can have dinner with a European or US businessman and have five things in common to talk about. He can't do that in East Asia.” Many chief executives of Indian companies have been trained and educated in the US or Europe, travelling back regularly for holidays.

Of course, India still lacks the size of companies in China, South Korea and Japan, let alone outside Asia. It faces a number of potential pitfalls while it plays catch-up.Top of the list is a collapse in confidence and fund-raising ability that would be caused by an increase in interest rates and falling equity markets.

Although the government has relaxed limits on the use of foreign exchange by Indian companies for overseas acquisitions, companies are still not permitted to undertake overseas acquisitions equivalent to more than two times their net worth. This means that, sooner or later, Indian companies’ efforts to expand abroad will run into restrictions. “As your ambition grows greater, you are more likely to run not only into regulatory issues but also into financing issues,” says Mr Rosling.

Another challenge typically facing Indian companies acquiring overseas targets is perception. Takeovers make employees of a target company jittery at the best of times but particularly so when the acquirer is from a developing country many of them may know very little about.

...But Indian companies have also been helped by the fact that so far they have not made big bets. So, unlike companies such as Taiwan’s BenQ, which recently put Siemens’ mobile unit into receivership after taking it over only last year, any failures by Indian companies making acquisitions overseas have barely been noticeable.

Bankers say in general, the focus on returns has been a distinguishing factor of overseas acquisitions by Indian companies, and taking over a much larger foreign operator could potentially hurt those returns. In other words, Indian companies stay profitable by buying small to medium-size targets.

...But there is one area, energy, in which the temptation to break this rule will be the greatest. In its latest such deal, ONGC’s acquisition with China’s Sinopec of the Colombian assets of Texas-based Ominex, the Indian company was said to be determined to secure the $800m deal no matter what.

Comments

[travesti sex]

istanbul hotel new york hotels alaska This article is very beautiful, I really get very beyendım text files manually to your health as you travesti very beautiful and I wish you continued success with all respect ..

Thanks for helpful information travesti siteleri you catch up us with your sagol instructional çok explanation.
en iyi travestiler en guzel travesti

travesti
istanbul travestileri
ankara travestileri
izmir travestileri
travestiler
trv
travesti siteleri
travesti video
travesti sex
travesti porno
travesti
travesti
travesti
travestiler
travesti
travestiler
sohbet
travesti
chat
organik
güncel blog
sohbet
muhabbet
turkce mirc

[Maria]

Çilek sex shop Mağzamızda En Kaliteli sex ürünleri, sex oyuncakları şişme bebek ve erotic shop erotik giyim Ürünlerini Bulabileceğiniz Gibi Ayrıca, penis büyütücü, geciktirici, Bayan Uyarıcı, Ürünlerde Temin Edebilirsiniz. 1994 ten Bu Yana En Kaliteli Orjinal Erotik Ürünlerini Sağlamakta Olan Çilek Erotik Shop ta Tüm Cinsel Ürünleri Bulabilirsiniz

[VimaX]

I am thoroughly convinced in this said post. I am currently searching for ways in which I could enhance my knowledge in this said topic you have posted here. It does help me a lot knowing that you have shared this information here freely. I love the way the people here interact and shared their opinions too. I would love to track your future posts pertaining to the said topic we are able to read.