New Delhi: Borrowings to fund overseas acquisitions are the right way to go, but it may lead to piling up of huge debts for companies in case there is a slowdown in global economy, experts say.
“Debt financing has become the language of the day. With proper management of funds and company friendly interest rates, debt financing has been in vogue - in fact leveraged buyout is one of the most common transaction structures overseas,” global audit firm PricewaterhourseCoopers Executive Director Sanjeev Krishan told PTI.
In India, we are still getting used to higher debt component financing transactions, which is the right way to go as one needs to be conservative to begin with,“ he added.
On the other hand, according to the latest KPMG Emerging Markets International Acquisitions Tracker, with most Indian M&A deals being highly leveraged any slowdown in the global economy could hurt the acquiring companies badly.
“This raises some concerns over what would happen if the global economy took a turn for the worse, leaving the purchasers with a mountain of debt and insufficient equity to ride out the storm, ” it said.
In India, the outbound deals have been steadily increasing for the past three years, culminating in 32 deals being recorded in the first half of 2007 and North America was by far the most popular destination for Indian acquirers, being responsible for 18 of those deals, the KPMG report said.
However, PwC believes Indian companies may not be struck in any problems if there is a global slowdown as they are not acquiring to gather newer market but for getting resources for employing them in their existing markets.