RELIANCE INDUSTRIES POTENTIALLY ACQUIRES LYONDELLBASELL AMIDST RECESSION LED PURCHASE PRICE

The potential purchase of a controlling stake in LyondellBasell Industries AF, the world’s third largest petrochemical company, by Reliance Industries Ltd, India’s largest company by market capitalization, marks a return to multi-billion dollar overseas acquisitions by cash-rich Indian companies tempted by depreciated asset prices of companies affected by the biggest worldwide recession since the Great Depression. If successful, it could make Reliance Industries India’s first company to have a market value greater than $100 billion.

Indian companies with a war chest of cash reserves include the Oil and Natural Gas Corporation Limited (ONGC), India’s state owned petroleum company, with reserves of about $5 billion; Reliance Industries with reserves of $4.2 billion and Tata Sons, the holding company for all Tata Group’s investments, with about $640 million .

Indian companies are on the hunt for bargain basement prices overseas. This is a good time for them to buy market share and customers in the West at fraction of what they would have paid a couple of years ago.

After a lull of about 18 months, Indian companies have aggressively started looking at foreign assets again. During that time, western economies dipped to low single-digit GDP growth and unemployment surged into double digits amidst the worst banking industry led financial crisis in decades. By contrast, the Indian economy continues to grow at nearly 7% annually amidst growing consumer demand and a robust banking system.

The fear that India’s economy might follow the West into a recession is over. That’s giving Indian companies the confidence to go hunting again in overseas markets where the recession gives them one-in-a-lifetime opportunities to acquire depressed assets.

LyondellBasell, based in Rotterdam in the Netherlands, sought bankruptcy protection early this year after demand for its plastic products plunged last year.

The acquisition of LyondellBasell by Reliance is expected to be India’s biggest cross-border deal this year, on par with the acquisition of the U.K.’s top steel maker Corus Group Plc for $12 billion by India’s Tata Steel Ltd in January 2007. Indian M&A activities peaked in 2007 with more than $51 billion worth of transactions.

India has been host to 234 M&A deals amounting to only about $8 billion during the first 10 months of this year, less than a third of that in the corresponding period in 2008.

The $100 Billion Club
The Reliance – LyondellBasell combine will accelerate Reliance into the elite league of companies worldwide that have a market capitalisation of more than $100 billion (Rs 460,000 crore). The combined entity will have potential consolidated revenue of more than $85 billion, transcontinental presence across more than 60 facilities and 60,000 people. Reliance Industries currently has a market value of about $75 billion.

The Indian companies are buying international scale and growth not only in developing economies, but to compete in developed economies as well. Reliance’s acquisition of LyondellBasell will mark India’s entry in the international petrochemical industry, just as previous years saw India Inc. buy into international steel, auto and IT industries.

Indian oil companies are stepping up overseas purchases as shrinking profit margins have prompted international refiners to idle and sell plants. Crude oil currently trades at about half its record $147.27 a barrel in July 2008.

Essar Oil, India’s second-largest private refinery is currently in talks to buy three refineries in the U.K. and Germany from Royal Dutch Shell Plc. Oil & Natural Gas Corp., India’s biggest energy explorer, completed a 1.4 billion-pound ($2.3 billion) acquisition of Imperial Energy Plc in March.

BHARTI-MTN DEAL LARGEST INDIAN CROSS-BORDER CORPORATE MERGER

--- India’s biggest cross border deal, twice the value of Tata Steel – Corus and Vodafone – Hutchison Essar transactions


The potential merger of India’s largest GSM mobile telecom service provider Bharti Airtel Ltd and South Africa's largest telecom company MTN Group Limited highlights the attractiveness of fast-growing telecoms markets in India and Africa and reinforces India Inc.’s global ambitions undeterred by the worldwide economic slowdown.

”The companies are buying international scale and growth in the world’s fastest growing telecoms markets of India and Africa,” said Bundeep Singh Rangar, Chairman IndusView Advisors Ltd, the India-focused cross-border advisory firm. “This one deal worth $23 billion will almost match the value of the 280 cross-border mergers and acquisitions last year at $25 billion. It marks the grand entry of India as an acquirer in the international telecoms industry, just as previous years saw India Inc. buy into international steel, auto and IT industries.”

“It shows what a catalyst a stable government with an unencumbered policy toward economic liberalization can be,” he added. The Indian National Congress led United Progressive Alliance (UPA) won a second term in Parliament with an increased majority, in an affirmation of its economic policies of continued liberalization and desire for political stability and continuity.

The merger of Bharti and MTN will be India’s biggest cross border deal at almost twice the value of the acquisition of U.K.’s top steel maker Corus Group Plc for $12 billion by India’s Tata Steel Ltd in January 2007. It also surpasses the acquisition of Hutchison Essar Ltd, India’s second largest GSM mobile service provider then by the U.K.’s Vodafone Group Plc for $11 billion, by more than a similar margin.

The Bharti Airtel and MTN Group combine will create a leading emerging market telecom operator with more than $60 billion in market value, revenues of about $20 billion and over 200 million subscribers. The combined entity will be amongst the top five service providers globally with operations spanning more than 23 countries in Asia, Middle East and Africa.

The new entity will enjoy better pricing power in the market, lower costs on account of shared infrastructure and resources, better purchasing power with suppliers, doubling up of subscribers to 200 million that will gradually result in more average revenue per user (ARPU) as new mobile applications and services are offered to them.

Global telecom companies are drawn to India’s market estimated to grow to more than 650 million subscribers by 2012 from 360 million currently as 10 million new subscribers are added each month. Africa’s telecommunications growth is driven by its 360 million mobile users who account for 90% of all subscribers, growing at about 40% per year.

The telecommunication sector has been a significant driver of merger and acquisition (M&A) deals in India accounting for the highest share of deals at 18.6% and 22% during the last two years with values of $5.7 billion and $11 billion in 2008 and 2007, respectively.

“The deal will add the much needed traction to the deal flow in the country this year encouraging other companies to pursue their growth ambitions that had been stalled owing to the downturn,” added Rangar.

The total number of M&A deals during the first four months of 2009 at $2 billion against $9.43 billion during the corresponding period last year illustrates the impact of the economic slowdown.

The string of investments in Indian telecom companies since last year, 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; Gulf-based Bahrain Telecommunications Co’s acquisition of 49% stake in S Tel Ltd, joint venture between Skycity Foundations and Telecom Investments (Mauritius) Ltd for $225 million; and now, South Africa’s largest telecom company MTN Group’s renewed attempt to enter the Indian market – are an indication of the fact that there is ample room to enter this market, at least inorganically.

Other international telecom service providers seeking an India entry include Kuwait-based Zain Group, Qatar Telecom, Italy-based Telecom Italia SpA, 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 a market that is projected to offer overall mobile services revenues of more than $37 billion by 2012 growing at a CAGR of 18%, according to estimates.

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.

“The Indian National Congress led government’s pledge to revive the economy from the slowdown with continued liberalization will likely see more regulatory reforms toward attracting investments in the telecom sector, among others,” added Rangar

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; and Loop Telecom, a BPL Mobile Communications group company, which are likely targets – but within the regulatory purview of the overseas entity’s stake in the domestic company not to exceed 74%.

IDEA-SPICE DEAL 4th LARGEST M&A IN INDIA

The buyout of Spice Telecom by Idea Cellular is the fourth largest merger and acquisition deal involving an Indian entity and may be a pre-cursor to more such transactions in the telecom space.

The Financial Express

Core and Infrastructure Sectors Dominate Deal Street in 2007; Garner Transactions Worth $40 billion with 78% Share

--- Core Sector Deal Street sets ground for 2008; Expected to lead the table in 2008 with deals worth $54 billion

--- Overall M&A highlight the India-Europe corridor that witnessed 63% share in cross-border deals at $30 billion

“India has a long way to go before Mumbai resembles Shanghai, or New Delhi rivals New York. India consistently under-spends on new infrastructure even as its existing patchwork of roads, railways, airports and power & energy providers struggle to cope with India’s burgeoning economy - and population.” says Bundeep Singh Rangar, Chairman of IndusView, the India-focused cross-border advisory firm.

The Year 2007 has gone down well as the year of ‘The Core and Infrastructure Sectors’ with the deal street transactions grossing about $40 billion from 89 deals, which is 10 times the value of deals in the sector in the whole of calendar year 2006. That represents 78% of the total value of $51 billion from 675 deals.

“The focus towards the sectors is buoyed by the growing demand for urban lifestyle and world class infrastructure facilities which have been under pressure to come up to 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 need for world class infrastructure to accelerate growth in the Indian economy to 10% will see the application of internationally applicable best practices, experienced global management expertise & technology and inflow of a resource base of incremental funds. A part of this capital resource is expected to find its way in to mergers & acquisitions (M&As) worth $54 billion in the core and infrastructure sectors in 2008, a growth of 35% compared to 2007.” said Rishi Sahai, Board Director, IndusView.

The combined spending on core and infrastructure sectors by both the public and private sectors accounted for about 5% of Gross Domestic Product (GDP). That pales in comparison with China that spends about 11% of its GDP for infrastructure development.

The Indian government has responded to an urgent demand for new infrastructure, announcing that 9% of the country’s GDP will be spent 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.

Among the core sectors, Metals & Alloys led M&As accounting for deals worth $22 billion and share of 43% in the total deal value, followed by Power and Oil & Gas sectors grossing $5 billion with a share of 9.8% of the deal value. Telecommunication sector emerged the second most consolidating sector with $11.3 billion and 22% of the total deal value. The other sectors which have significantly contributed to the M&A activity was Information Technology (IT) & IT enabled Services and pharmaceutical with deals worth $2.8 billion and $1.4 billion with 5.6% and 2.8% share in M&A deal values, respectively.

The key high value deals included Tata Steel’s acquisition of U.K.’s steel manufacturer Corus Group Plc for $12.2 billion, Hindalco’s acquisition of Novelis Inc for $6 billion and Vodafone’s acquisition of majority stake in Hutchisson Essar for a price of $10.8 billion topped the tables. These were followed by Suzlon Energy Ltd’s acquisition of German wind turbine company REpower Systems AG.; Algoma Steel Inc., Canada based an integrated primary steel producer, by India’s Essar Steel Ltd; and PT Kaltim Prima Coal, Indonesia's largest coal exporter by Tata Power Company Ltd, India’s largest private sector electricity generating company

Cross Border Deals

Significant aspect of the recent M&A activity has been India Inc.’s global ambitions which touched a new high with overseas acquisitions (outbound) worth more than $32 billion, which is twice the value of acquisition made by overseas companies in India (inbound). It also shows the exponential growth in cross-border deal activity at $48 billion in 2007, more than three times achieved in the whole of year 2006.

Trade between India and Europe is expected to multiply five times to $100 billion by 2010 from current level of $20 billion, according to industry estimates. Acquisitions by Indian companies in Europe accounted for 52% of the total acquisitions made overseas worth $16 billion, with the U.K. contributing about 39% of the overseas deal value, ahead of the U.S. at 32% amounting to about $12.5 billion and $10.5 billion, respectively.

Europe dominated the inbound deal activity as well, notching up a share of 89% of the inbound deal value of which the U.K. constituted about 80% of the deal value.

“Indian and the U.K. companies are seeking to unlock the potential in emerging economies on one hand and harnessing the size and scale of global operations on the other. The acquisition of Hutchison Essar Ltd by the U.K.’s Vodafone Group Plc and the acquisition of the U.K.’s largest steel maker Corus Group Plc by India’s Tata Steel Ltd are two such cases in point.” said Rangar

The investments by India Inc. in Britain during the fiscal year 2006-07 has created 5,130 jobs, second to the U.S., according to the U.K.’s Department of Trade and Industry. In terms of the number of new projects, India has been ranked third with 69 new projects, after 540 new projects of the U.S. and 95 new projects of France.

Indian investment in the U.K. had gone up 111% to 76 projects, creating almost 4,000 jobs during 2005-06. The Indian investment has contributed $67 million (£33 million) to the London economy in 2006-07, according to Think London, an agency promoting investment into the city.

M&As were toast of season for India Inc in 2007

India's corporate honchos spent a considerable time and energy this year at deal tables and executed over thousand transactions involving sale or purchase of equity stakes in their companies. On an average, every single day of 2007 saw about three deals being announced. This included a total of 1,047 merger and acquisitions as well as private equity deals for a total value of $68.32 billion (about Rs 2,75,000 crore).

The Economic Times
http://economictimes.indiatimes.com/
MAs_were_toast_of_season_for_India_Inc_in_2007/articleshow/2633288.cms