These days when KPMG's Mumbai corporate finance head Rohit Kapur meets Indian chief executives, he finds a marked difference in the corner suite talk. Until recently, Indian bosses were still firming up their mergers-and-acquisition shopping itinerary. No longer. "Now they talk of rationalizing their business portfolio and monetizing assets to expand their core businesses," he says.
Until a few months ago, India's conglomerates had been scouring the world for M&A targets. Thanks to a long bull run in the Indian stock market and easy availability of finance, cash-flush companies were on an acquisition rampage (BusinessWeek.com, 5/15/08) from the U.S. to Australia, scooping up everything from cinemas to design houses to consumer-products companies. Indian companies spent $90 billion on M&A since 2007, according to Hong Kong research firm Dealogic. Among the most prominent was Reliance—Anil Dhirubhai Ambani Group (Reliance—ADAG), which invested $500 million in DreamWorks Animation in June and in the past two years made acquisitions ranging from cinemas in the U.S. to social networking sites in India.
But as the credit crunch deepens, Indian companies that shopped around the world are feeling the strain. Tata Motors (TTM), aluminum maker Hindalco, and turbine maker Suzlon Energy saw recent rights issues flop. Suzlon Energy withdrew a $360 million rights offering on Oct. 27, citing an adverse market response. The company also shelved plans to set up a tower manufacturing facility in India.Buying Sprees
The companies had been raising the money to pay off loans for big-ticket global purchases. Tata Motors acquired Jaguar and Land Rover (BusinessWeek.com, 3/26/08) from Ford (F) in March for $2.3 billion. Sister company Tata Steel had acquired Anglo-Dutch steelmaker Corus for $12.1 billion in January 2007. Hindalco spent $6.3 billion for Atlanta aluminum rolled products maker Novelis early last year. Suzlon had been on a buying spree too, buying Belgium's Hansen Transmissions in 2006 and Germany's REPower Systems in May 2007 for $1.6 billion. Suzlon had been trying to raise $360 million to buy out the minority shareholders in REPower.
Now companies are struggling to come up with the cash to pay for these deals. India Inc. has $45 billion in foreign-currency borrowings used for expansion and acquisitions when rocketing stock valuations in the domestic market made external borrowing more appealing. But in today's tough financial environment, the buying sprees and expansion plans have come to haunt companies. The Indian market is down 54% since January, and many of the companies' shares have plunged below the prices offered by their rights issues.