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Market strength tempts India back into M&A fray

Market strength tempts India back into M&A fray
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First Published: Wed, Feb 03 2010. 04 21 PM IST
Updated: Wed, Feb 03 2010. 04 21 PM IST
Mumbai: In 2007, Indian firms made $22.6 billion of overseas buys, not far behind China’s haul. Outbound M&A last year was just $1.3 billion, while China spent $42.7 billion.
Now, Corporate India is back on the overseas acquisition trail, but moving with caution.
Comparatively unscathed by the global financial crisis, and with prices more attractive now than during the last buying spree, firms such as Reliance Industries, Oil and Natural Gas Corp, Bharti Airtel and Sterlite Industries are on the prowl.
However, the Indian search for new markets and technology may be more cautious even as the recent turbulence has left hard-hit foreign firms having to shed assets. And a return to the heady days when Indian firms splashed out on high-profile, high-priced deals for Jaguar-Land Rover and Corus steel is unlikely for now.
“At least conversations have started. How many of these turn into transactions is unclear,” said Vedika Bhandarkar, head of investment banking for JPMorgan in India.
Reliance Industries, India’s top-listed firm, has said it is looking to buy bankrupt Luxembourg-based petrochemicals maker LyondellBasell in a deal that could be worth $13.5 billion, according to a source. Bharti recently agreed to buy 70% in Bangladesh’s Warid Telecom for $300 million.
Bankers said neither firm is finished making deals. Indian resources companies are also looking for assets, including coal mines and oil fields, to increase output as energy demand in Asia’s third-largest economy grows. State-run ONGC, for example, is in the running for oil projects in Venezuela.
Much of China’s 2009 buying spree was also resource-related as government-controlled firms backed by state financing bought mining and energy assets from Africa to Australia.
Weak debt markets since 2008 disrupted deal plans from companies worldwide ,but last year’s 81% rise in India’s stock market — one of the world’s best performers — has helped arm Indian firms for equity-funded deals.
“M&A happens when volatility in markets is low. And it seems like markets are stabilising now,” said Saurabh Agrawal, head of investment banking at Bank of America-Merrill Lynch in India.
“We are definitely going to see more deals in 2010. And most will be cross-border deals.”
The bulk of overseas deals by Indian firms have been made by the country’s private-sector firms.
Among deals in the pipeline, Essar Oil is in exclusive talks with Royal Dutch Shell to buy three European refineries for about $1 billion.
Top Indian power producer NTPC is evaluating three overseas coal mines — two in Indonesia and one in Mozambique — and hopes to acquire at least two of them in the next financial year, the state-run firm’s chairman said.
When venerable Indian conglomerate Tata Group bought European steelmaker Corus and the British Jaguar and Land Rover brands in 2007 and 2008, respectively, it seemed Indian firms’ dreams of gaining a foothold abroad were coming to fruition.
But as markets collapsed, Tata was seen as having overstretched by buying brands near their peaks. Corus and JLR both struggled during the slowdown, but are showing signs of recovery as demand improves.
In another sign of India’s outbound ambition, top telecom Bharti bid to merge last year with South Africa’s MTN in a $24 billion deal that ultimately collapsed over South African government opposition.
With markets recovering, bankers say companies such as Bharti and Reliance, which is controlled by billionaire Mukesh Ambani and owns the world’s largest refining complex, could look at buying parts of foreign companies or entering partnerships even if they don’t succeed in acquiring entire firms.
“Indian markets have picked up better than western markets and this is going to fuel equity-funded deals,” said Raj Balakrishnan, managing director of M&A at BofA-Merrill Lynch.
“Now that things are looking better, we could see a lot more deals. Will it go back to 2007-08 levels? I’m not so sure.
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First Published: Wed, Feb 03 2010. 04 21 PM IST