India debt costs make overseas buys tougher

Mumbai: Indian companies are finding it tougher to make overseas acquisitions as borrowing costs rise, but there are still some chasing deals, mainly in the telecoms, drugs and industrials sectors, a senior JP Morgan official said.

"Transactions where debt financing is an important aspect are certainly more difficult today, but deals involving companies with strong balance sheets still look promising," Ranjit Lakh-anpal, managing director of investment banking and head of corporate finance in India, said in an interview.

Overseas acquisitions by Indian companies fell by nearly half, to $7.6 billion, in January-June from last year when mergers and acquisitions (M&A) were boosted by deals such as Tata Steel's Corus buy, Thomson Reuters data showed.

Big deals

So far this year the big deals include Tata Motors' acquisition of Jaguar and Land Rover from Ford Motor Co for $2.3 billion and Sterlite Industries $2.6 billion bid for Asarco LLC.

Deals have slowed after offshore borrowing costs rose as much as 200 basis points in the past year, feeling the impact of the global credit squeeze.

Raising funds in India has also become difficult, with the main share index down a quarter this year depressing equity issues, while the central bank has raised its key lending rate to the highest in seven years to rein in inflation.

Bankers say India's top aluminium maker, Hindalco Industries, is finding it hard to raise $3 billion to replace a bridge loan it took to acquire Canadian aluminium maker Novelis in 2007.

Still, there is appetite for deals, said the 39-year-old Lakhanpal, who joined JP Morgan last year after stints with Goldman Sachs and Credit Suisse.

"Indian corporates continue to evaluate opportunities to expand their global footprint, enhance access to raw materials or expand their product and service portfolios," he said.

The US firm has tripled its investment banking staff to 24 in India in the last three years to grab opportunities in an economy that has grown at close to 9 per cent in the last five years. It was co-adviser to Tata Motors' acquisition of the Ford brands.

Telecom firms looking to expand overseas and basic industries such as oil, utilities and steel wanting to secure raw materials were the top contenders for outbound acquisitions, he said.

Both Bharti Airtel Ltd and Reliance Communications Ltd recently failed to clinch a multi-billion dollar deal with South Africa's MTN Group Ltd.

Overseas telecoms are also eyeing assets in India, the world's largest wireless market after China, and, in the drug sector, Japan's Daiichi Sankyo has agreed to take control of Ranbaxy Laboratories for up to $4.6 billion.