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Mumbai: More multi-national corporations (MNCs) have announced plans to delist or raise their holdings in Indian subsidiaries in the current financial year than they did in the previous six years, seeking to gain greater control of their businesses in Asia’s third largest economy.

According to data from Ace Equity, 14 MNCs have come up with open offers to raise their stakes in their Indian units so far this fiscal year, compared with nine in the last.

Seven MNCs have announced their intention to delist their local businesses, with one completing the process. Three companies delisted their Indian arms in the last financial year.

“When a business in the particular country is doing well, the companies would want to keep the earnings for themselves," said Dhananjay Sinha, head of institutional research at Emkay Global Financial Services Ltd. “Also, by doing this, they would want to reward the shareholders in their home country."

When an MNC delists its local unit or increases its stake by making an open offer, promoters and shareholders in its home market stand to benefit in terms of a greater share of earnings from the Indian operation. Shareholders can earn fatter dividends; higher accruals can be ploughed back into expansion.

In July, Anglo–Dutch consumer goods company Unilever Plc raised its stake in its Indian arm Hindustan Unilever Ltd (HUL) to 67.3% from 52.5%, in the biggest ever open offer in Indian history, for a consideration of 19,202 crore. The stake was purchased through a voluntary offer by the world’s second largest consumer goods company in which it sought to increase its holding to as much as 75%.

In another big open offer that started last month, UK-based drug maker GlaxoSmithKline Plc (GSK) is seeking to raise its holding in its Indian pharmaceutical arm GlaxoSmithKline Pharmaceuticals Ltd to 75% from 50.7%, which may cost around 6,400 crore.

The trend cuts across sectors. New York-based credit rating agency Moody’s Investors Service Inc. has proposed to increase its stake in its local subsidiary Icra Ltd by purchasing an additional stake of up to 26.5% through a share buyback at 2,000 per share. Moody’s is the single largest shareholder in Icra with a 28.51% stake it holds through its subsidiary Moody’s Investment Co. India Pvt. Ltd.

“The rupee had also depreciated sharply against the US dollar in recent times, giving these MNCs an opportunity to buy more of their equity with fewer dollars," said Sinha of Emkay.

The rupee depreciated 15.8% against the dollar in 2011, 3.5% in 2012 and 11% last year, raising the buying power of the greenback. It has been flat since the start of this year.

India’s economic growth slowed to 4.5% in the year ended 31 March, the weakest in a decade, and is estimated by the government to stay below 5% in the current year. But that hasn’t deterred MNCs, which are betting on the long-term potential of the country of 1.2 billion people.

“India is a long-term demographic story. Most MNCs have entered India with a medium- to long-term vision," said Amisha Vora, joint managing director of Prabhudas Lilladher Pvt. Ltd.

Using cash on their balance sheets to buy back shares in their Indian units makes good business sense for MNCs at a time when yields are low in the Western world, according to Vora.

“Besides, they can also get rid of a huge chunk of regulatory hassles related to protecting the interest of minority shareholders, etc.," added Vora.

In a report dated 2 January, HDFC Securities Ltd said that for years, MNCs had operated in India through subsidiaries and been forced to list them on Indian stock exchanges in the late 1970s because of the erstwhile Foreign Exchange Regulation Act.

“Over the years, litigation between MNCs and regulators continued over issues like parent company holdings, royalty paid to the parent, minority shareholder interests and so on," analyst Sneha Venkatraman said in the report.

“Previously, MNCs were happy holding 51% stake in their listed Indian subsidiaries but over the past few years it has been noticed that they have increased their shareholding either through creeping acquisitions or open offers," Venkatraman said.

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