INDIAN MOBILE TELECOMMUNICATION: AMPLE SCOPE TO ENTER

--- Potential market of 700 million subscribers and $37 billion revenue base by 2012

--- Tata Teleservices - NTT DoCoMo, Swan Telecom – Etisalat and Unitech Telecom – Telenor deals expose Indian Telecom M&A Potential: Deals at $5.8 billion

--- IT and Telecom most consolidating sectors; only sector to cross three digits mark of 100 deals for $6 billion with 21.4% share in M&As worth $28 billion this year to October;

--- IT and Telecom sectors expected to close the year with deals worth $10 billion

The deal by NTT DoCoMo Inc, Japan’s largest mobile telecommunication service provider to pick up 26% stake in Tata Teleservices Ltd, the telecom services arm of India’s largest private sector diversified Tata Group for $2.7 billion exposes the India entry potential for global mobile telecom service providers who do not have on their radar an India entry strategy yet.

Such service providers are missing out on opportunities in a country where incumbent mobile telecommunication service providers collectively add more than nine million subscribers a month and are projected to have overall mobile services revenues of more than $37 billion by 2012 growing at a CAGR of 18%, according to estimates.

The string of investments in Indian telecom companies, including, Tata Teleservices Ltd, the telecommunication services arm of India’s largest private sector diversified Tata Group by NTT DoCoMo, Inc., the largest Japanese mobile telecom service provider; Unitech Telecom, the telecom arm of India’s second largest real estate developer Unitech Ltd by Norwegian telecom firm Telenor ASA, world’s seventh largest telecom service provider at $1.36 billion; and Swan Telecom, a start-up GSM telecom service company of a Mumbai-based real estate developer Dynamix Balwas Group by Dubai-based Emirates Telecommunications Corp (Etisalat) at $900 million; or, South Africa’s largest telecom company MTN Group’s attempts to enter the Indian market – are an indication of the fact that there is ample room to enter this market, at least inorganically.

“The investments in Tata Teleservices by NTT DoCoMo and the start-up operations of Swan Telecom by Etisalat and Telenor ASA’s in Unitech Telecom exposes the potential for inorganic activity in a market that is otherwise considered to be crowded but has a tele-density of less than 30%, signifying the expected growth potential in the sector.” said Bundeep Singh Rangar, Chairman IndusView Advisors Ltd, the India-focused cross-border advisory firm.

The Tata Teleservices deal will accelerate the telecommunication sector deal activity to $5.8 billion from about $3.1 billion in the deal street that grossed more than $28 billion this year to October.

Opportunities Exist

Other international telecom service providers seeking an India entry include Kuwait-based Zain Group, Qatar Telecom, Bahrain Telecom, Italy-based Telecom Italia SpA, South Africa’s MTN Group, among others. However, some of the global mobile telecom service providers such as Telefonica SA of Spain, French mobile telecommunication services provider, France Telecom and Deutsche Telekom AG of Germany are among those missing out on the opportunity to tap the growing mobile subscriber base expected to reach more than 700 million by 2012 from the current 300 million, at a CAGR of 21%.

Such growth trends bring with it corresponding increase in investments as government estimates suggest that the overall telecommunication sector will need $73 billion over the next five years to achieve a tele-density of up to 45%. And, a major chunk of the investment is expected to be realized through Foreign Direct Investment (FDI), particularly in the area of mobile communication.

It becomes significant as the government has granted new licenses and spectrum to aspiring operators such as Datacom Solutions a subsidiary of one of India’s leading consumer durables company Videocon Industries Ltd; Loop Telecom, a BPL Mobile Communications group company; S Tel Ltd, joint venture between Skycity Foundations and Telecom Investments (Mauritius) Ltd; among others which are likely targets – but within the regulatory purview of the overseas entity’s stake in the domestic company not to exceed 74%.

“MTN Group, South Africa’s largest mobile service provider with operations in 21 countries is another service provider waiting in the pit-lane to move in to India after its attempts to do so failed on two earlier occasions with leading Indian telecom service providers Bharti Airtel Ltd on the first count, followed by Reliance Communication, which could have been the largest emerging markets telecoms merger worth more than $65 billion.” added Rangar

Other large mobile telecom deal this year included Idea Cellular Ltd, the telecom business of the diversified Aditya Birla Group, acquiring 40% stake in Spice Communications Ltd, a regional cellular services provider for $675 million.

Information Technology (IT) and Telecom: Deals Despite the Downturn

Taking a collective view of the inorganic growth activity in the technology driven businesses, Information Technology (IT) & IT enabled Services (ITeS) and Telecommunication together account for deals worth about $6 billion emerging as the most consolidating sectors crossing the three digit mark of 100 deals with 21% share in M&As worth $28 billion to October this year.

Some of the large deals in the sector so far include:

§ The acquisition of Citigroup's captive Business Process Outsourcing (BPO) arm Citigroup Global Services (CGSL) for $505 million by India’s largest IT services exporter Tata Consultancy Services - the largest buyout of a foreign captive BPO in India;

§ WNS Holdings acquisition of Aviva Global services for $228 million,

§ Quatrro BPO Solutions buying a majority stake in the U.K.-based Babel Media for $110 million, and

§ Essar-owned Aegis BPO buying Nasdaq-listed People Support for $250 million

§ ITeS company CBay Systems bought 69.50% stake in MedQuist Inc. for $287 million.

In fact the pending purchase of Axon Group Plc, the U.K.-based provider of SAP implementation consulting, by HCL Technologies Ltd for $814 million after it rivalled the bid of its larger competitor and second largest IT services company Infosys Technologies Ltd, will give the IT and Telecom sector top slot in the sectoral ranking of the merger and acquisition (M&A) table with deal value exceeding $10 billion (including the Tata Teleservices deal).

The other deal in the making is that of Tata Consultancy Services’, India’s largest software services exporter, expected acquisition of Europe's largest engineering conglomerate Siemens AG’s IT Solutions and Services (SIS) unit.

Prior to the announcement of the Tata Teleservices-NTT DoCoMo, Swan-Etilsalat and Unitech-Telenor deals, the Power sector led the M&A activity with deal value grossing $5 billion followed by Pharmaceutical sector with M&A deal values of more than $4 billion. These sectors were followed by the Banking & Financial Services at $3 billion and Automotive Sector with deal value of about $2.5 billion.

First Three Quarters Of Indian M&As Top $26 Billion

--- Cash rich Indian companies’ overseas acquisitions worth $14 billion outpace their global counterparts that made acquisitions worth $8 billion in India

--- Infrastructure Sector Dominates Deal Street with transactions worth $12 Billion

--- Power, Oil & Gas top grosser with merger & acquisitions (M&As) worth $5 billion; Ninth India-EU Summit sets ground for future deals in Nuclear Energy

--- Banking & Financial Services and Pharmaceutical sectors follow with M&A deal values of more than $3 billion each

--- Overall M&As highlight the India-Europe corridor that witnessed 52% share in total cross-border deals worth $22 billion

Cash rich acquisitive Indian companies are set to make new acquisitions as target companies are significantly cheaper now than just six months ago. The cache of cash as an acquisition currency has also increased as global recessionary trends have driven stock prices worldwide to historic lows.

The acquisition of Citigroup's captive Business Process Outsourcing (BPO) arm Citigroup Global Services (CGSL) for $505 million by India’s largest IT services exporter Tata Consultancy Services - the largest buyout of a foreign captive BPO in India; the acquisition of the U.K.’s Imperial Energy Plc, one of the leading oil companies with assets in Russia by India’s ONGC Videsh Ltd, a subsidiary of India’s biggest explorer Oil & Natural Gas Corporation (ONGC) Ltd for $2.8 billion; the pending purchase of Axon Group Plc, the U.K.-based provider of SAP implementation consulting, that has invited rival bids from India’s second largest IT services company Infosys Technologies Ltd and HCL Technologies Ltd., are all manifestations of an M&A binge fueled by large cash reserves held by Indian companies.

Indian companies with a war chest of cash reserves, such as Infosys Technologies Ltd, India’s second largest IT services company, with reserves of about $2 billion; ONGC Ltd with similar reserves; Tata Sons, the holding company for all Tata Group’s investments, with reserves and surplus of more than $2.5 billion, among others, have become active acquirers in the market. This has happened as the US Standard & Poor's 500 Index has tumbled 33 percent in its worst yearly slump since 1937.

Infrastructure Dominates

Infrastructure-related industries dominated mergers and acquisitions (M&As), accounting for 45% of the deals at more than $11.8 billion of the total deal value of $26 billion this year to September.

“The traction in the infrastructure M&As is symbolic of the need for world class facilities, adoption of internationally applicable best practices, experienced global management expertise & technology applications to accelerate growth in the Indian economy. To get that resource base of incremental funds and expertise, part of the capital is expected to find its way in to mergers & acquisitions (M&As).” says Bundeep Singh Rangar, Chairman, IndusView Advisors Ltd, Europe’s fastest-growing Indian mergers and acquisitions firm.

The Indian government has responded to an urgent demand for new infrastructure targeting to spend 9% of the country’s GDP on infrastructure by 2012. Estimates suggest that a third of this investment will come from the private sector, presenting an unprecedented investment opportunity, with corresponding inorganic activity.

“The focus towards the sector is buoyed by the urgency to match global standards. This augmentation is expected to cost and attract investments to the tune of $500 billion over the next five years.” added Rangar

The power sector has been the main stay of the M&As this year within the infrastructure sector, which accounted for $5 billion, or 42% of the deal value in the infrastructure sector. The power sector commanded 19% share in the total M&A value of $26 billion this year compared with about $4 billion last year representing a 7.4% share of the total deal value of $51 billion.

The power sector witnessed two deals worth more than $1 billion – acquisition of the U.K.’s Imperial Energy Plc, one of the leading oil companies with assets in Russia by India’s state owned oil company ONGC Videsh Ltd, subsidiary of Oil & Natural Gas Corporation (ONGC) Ltd for $2.8 billion; and the acquisition of InterGen NV, a Dutch power company by Indian infrastructure company, GMR Infrastructure Ltd.

“The recently concluded ninth India-European Union summit in Marseille, France is expected to further accelerate the M&A activity in the power sector as it’s focus turned towards the potential of nuclear energy to the growth in trade between the two regions, which is targeted to reach €100 billion ($140 billion) over the next five years.” added Rangar

Among the infrastructure sectors, the power sector was followed by telecommunication sector that emerged the second most consolidating sector with $3.75 billion, a share of 32% in the infrastructure sector deal value and 14% share in the overall M&A deal value.

The other sectors which have significantly contributed to the M&A activity are Banking & Financial Services and Pharmaceutical sectors with M&A deal values of more than $3 billion each. These sectors were followed by the Automotive Sector with deal value of about $2.5 billion.

Some of the big ticket deals during the year to September included, the acquisition of

· The U.K.’s Imperial Energy Plc, one of the leading oil companies with assets in Russia by India’s state owned oil company ONGC Videsh Ltd, subsidiary of Oil & Natural Gas Corporation (ONGC) Ltd for $2.8 billion

· Jaguar and Land Rover, the U.K. based iconic marquees of the U.S.-based Ford Motor Company by India’s Tata Motors Ltd for $2.3 billion

· Tokyo-based pharmaceutical company Daiichi Sankyo Company Limited’s acquisition of Ranbaxy Laboratories Ltd, India’s largest pharma company for $2.4 billion

· HDFC Bank Ltd, one of India’s leading private sector banks acquisition of its domestic rival Centurion Bank of Punjab for $2.38 billion

· Investment $2 billion in Unitech Telecom, the telecom arm of India’s second largest real estate developer Unitech Ltd by Italy-based Telecom Italia SpA

Cross Border Deals

“Significant aspect of the M&A activity has been India Inc.’s eyes on global opportunities, which have become more prominent in the backdrop of the global recession.” explains Rangar

India Inc.’s overseas acquisitions (outbound) worth about $13.8 billion, outnumbering the value of acquisitions made by overseas companies in India (inbound) at more that $8.2 billion. Continuing the trend which peaked last year, cross border M&As this year too had a distinct European flavour.

Four of the big ticket overseas deals by Indian companies were in Europe. Acquisitions worth more than $2 billion were of Imperial Energy Plc and Jaguar & Landrover. The deals worth about $1 billion were acquisitions by Great Offshore, India's integrated offshore oilfield services provider of Cayman Island based SeaDragon Offshore Ltd; and the acquisition of InterGen NV, a Dutch power company by Indian infrastructure company, GMR Infrastructure Ltd.

Trade between India and Europe is expected to touch $100 billion by 2010 from current level of $80 billion, according to industry estimates. Acquisitions by Indian companies in Europe accounted for 58% of the total acquisitions made overseas. Europe also accounted for 45% of the inbound deals (deals by overseas companies in the country) in India, led by the acquisition of stake in Unitech Telecom by Telecom Italia.

The U.K. has been the main centre of investments with two of the big ticket deals of Imperial Energy Plc and Jaguar & Landrover by Indian companies. The third deal, that of Axon Group Plc, the U.K.-based provider of SAP implementation consulting, which features a competitive scenario between India’s second largest IT services company Infosys Technologies Ltd and its domestic rival HCL Technologies Ltd, is round the corner.

“Indian companies with their acquisitions of companies in the U.K. are increasingly seeking to harness the size and scale of global operations on one hand and unlock the potential in emerging economies on the other, exhibited by the acquisition of Jaguar and Land Rover, the U.K. based iconic marquees of the U.S.-based Ford Motor Company by Tata Motors Ltd; and the acquisition of the U.K.’s Imperial Energy Plc, one of the leading oil companies with assets in Russia by India’s state owned oil company ONGC Videsh Ltd, subsidiary of Oil & Natural Gas Corporation (ONGC) Ltd.” said Rangar

The U.K. has been the country of choice for overseas investments by Indian companies that invested $6 billion in the country during the first half of 2008. The investments by India Inc. in Britain during the fiscal year 2007-08 has created 3,846 jobs, ahead of its rival economy China that was involved in creating only 898 jobs, according to the U.K.’s Department of Trade and Industry. In terms of the number of new projects, India ranked seventh with 75 new projects, out-numbering China with 59 new projects.

TATA CONSULTANCY TO BUY CITI ARM FOR $505 MN

Notwithstanding the crisis in the global financial system, leading Indian information technology major Tata Consultancy Services (TCS) on Wednesday said it will buy the outsourcing arm of Citigroup for $505 million. In addition to the acquisition, TCS has entered into a $2.5 billion pact with US-headquartered Citigroup to provide outsourced services for a period of nine-and-a-half years

Hindustan Times

PE RUSH SEEN LIFTING VALUATIONS

The hanging uncertainty in the capital markets and the ensuing fall in company valuations have triggered an influx of private equity (PE) funds. But a likely overcrowding could stretch valuations. The 30% fall in stock markets, from January, has led to a greater appetite for PE funds, but many deals were stuck over high valuations. Now, with promoters seeing a prolonged stability in the market at the current levels, and with no immediate upswings in sight, the time is again ripe for PE. The BSE Sensex, which had touched 21,000 in early January, is now languishing over the 14,000-mark.

The Financial Express

HDFC Bank to buy Centurion for $2.4 bn

HDFC Bank, India's third-biggest by market value, offered $2.4 billion in shares for smaller Centurion Bank of Punjab in an attempt to bulk up ahead of the bank sector being opened to foreign competitors.

The Financial Express
http://www.financialexpress.com/news/
HDFC-Bank-to-buy-Centurion-for-2.4-bn/276898/

Citigroup CEO Vikram Pandit gets $30 mn bonus; 6-times of total India bankers' pay

World's largest lender Citigroup has awarded its newly-appointed CEO Vikram Pandit stocks worth $30 million, even as the India-born executive has decided to forgo a cash bonus at the crisis-ridden bank.

The Economic Times
http://economictimes.indiatimes.com/articleshow/
2734877.cms?from_et_daily_newsltr=1