OVERSEAS INVESTMENT MATCHES DOMESTIC CAPEX

India Inc.’s appetite for overseas investments at about $37 billion in the financial year 2008-09 is underscored by its corresponding increase in capital expenditure and inorganic expansion strategy to accelerate growth.

The surge in capital expenditure of $47.5 billion at more than 21% in the financial year 2008-09 has a very visible contribution of the infrastructure sector that accounted for a large chunk of the increase at $18 billion, with a share of more than a third.

As a clear signal of revival, the increased capital expenditure in the sector coupled with the Indian government’s well timed stimulus packages, amounting to 3.5% of the country’s GDP, resulted in a healthy growth of 6.5% in the six core infrastructure sectors in June 2009. The sector had grown by 5.1% in corresponding month the previous year, while the figure for May 2009 stood at 2.8%. Cement topped the chart with a growth of 12.8%, while steel rose 5.3%, both crucial inputs for construction activity.

Of significance is the fact that a part of the expense finds its way in to mergers and acquisitions (M&As), as in the case of the largest acquisition of the sector by state-run Oil and Natural Gas Corporation Ltd’s (ONGC) of then London Stock Exchange listed-Imperial Energy Corporation for $2.8 billion in August 2008. The other large overseas acquisition by an Indian company was that of the U.K.-based automobile marquee brands Jaguar and Land Rover by Tata Motors Ltd for $2.3 billion.

The potential merger of India’s largest GSM mobile telecom service provider Bharti Airtel Ltd and South Africa's largest telecom company MTN Group Ltd for about $23 billion will substantially add to the share of the telecom sector in the capital expenditure this year. The deal will result in about $4 billion of net cash outflow from Bharti. (See Vol4 | Issue 7; Bharti-MTN: A Billion Subscribers in Sight).