FCCBs regain currency; 4 firms raise $702 mn in four days
Abhineet Kumar & Deepak Korgaonkar / Mumbai September 26, 2009, 0:38 IST
After a year’s lull, foreign currency convertible bonds (FCCBs) are regaining currency. In the past four days, four companies have announced plans to raise $702 million (around Rs 3,370 crore) through FCCBs.
If Amtek Auto’s $65 million FCCB issue on September 11 is taken into account, the amount for September would be much higher. Before Amtek Auto, the last FCCB issue took place in August 2008 when Temptation Foods raised $200 million. But the global credit crisis and the liquidity crunch spoilt the party.
FCCB is a hybrid instrument that enables a buyer to convert bonds into equity before maturity at a pre-determined price. With share prices crashing, Indian companies were forced to buy back the bonds even if some of them had to raise fresh funds or dip into reserves. In all, 17 Indian companies bought back bonds worth $472 million using the special window opened by the Reserve Bank of India in December last year.
According to CLSA estimates, around 185 companies had issued FCCBs worth $20 billion (over Rs 95,000 crore) between 2004-05 and 2007-08. Of this, around $15 billion (around 72,000 crore) was outstanding, while the balance has been converted into equity. Most of the FCCBs are due for maturity over the next three years.
There were fears that the fall in equity markets would make the FCCB-issuing companies repay the debt. But with abundant liquidity in the global financial system and share prices rising in the domestic market, Indian issuers are back in the market.
“Investors expect the Indian stock markets to move up from current levels. So, they are looking at the incentive to convert the bonds into equity as prices rise,” said an executive at Welspun Gujarat. The company placed its $130 million issue with European and Asian investors.
Over the last three months, Indian companies have raised around $5 billion (Rs 24,000 crore) through external commercial borrowings, but most of these have been credit lines from parents, export credit agencies or Indian bank branches overseas. By offering conversion into equity as a sweetener, Indian companies are now trying to get overseas investors to shed their reluctance following last year's credit crisis.
Although investment bankers expect FCCB activity to pick up in the coming months, they warned companies to be careful. “Issuers of such bonds have to learn to manage liabilities; they need to provide for such bonds for risk management purpose and consider the outstanding bonds for calculating debt-equity ratio,” said Ravi Kapoor, managing director, capital markets for Citigroup Global Markets India.
The FCCB markets have, however, changed in terms of buyers and the coupon and premium available. Hedge funds, which were the largest subscribers earlier, have limited their participation. The largest participants are outright convert buyers who predominantly trade in FCCBs.
“Credit spreads have fallen dramatically in the last three to four months which is helping companies place FCCBs at much lower coupons,” said Vedika Bhandarkar, managing director, at J P Morgan India, the investment bank that was the sole book runner for the transaction of Welspun Gujarat.
Some FCCBs by overseas companies were placed at a coupon of 7 to 8 per cent early this year. Now the companies are able to place FCCBs at a coupon of 4 to 4.5 per cent. “The premium has also been rationalised and the days of 50 per cent premium are over,” she added. The bank was able to place the issue of Welspun Gujarat at premium of 20 per cent.
CURRENT ACCOUNT Name Date* Amt ($ mn)
Amtek Auto 11-Sep 65
Guj NRE Coke 22-Sep 60
Sujana Towers 22-Sep 12
Sesa Goa 24-Sep 500
Welspun Gujarat 25-Sep 130
*Date of announcements
http://www.business-standard.com/india/news/fccbs-regain-currency-4-firms-raise-702-mn-in-four-days/371331/
Saturday, September 26, 2009
M&M may buy Kirloskar's stake in Swaraj Engines
M&M may buy Kirloskar's stake in Swaraj Engines
Abhineet Kumar / Mumbai September 25, 2009, 0:51 IST
The company plans to expand its diesel engine business.
Mahindra & Mahindra (M&M), India’s largest tractor maker, is planning to consolidate its stake in Swaraj Engines, as part of a plan to expand the disel engine business. M&M acquired a 33.2 per cent stake in Swaraj Engines and a 14 per cent stake in Swaraj Mazda through its acquisition of Punjab Tractors in 2007.
Swaraj Engines, 23 years old, provides diesel engines for Swaraj Tractors. The company was formed in technical collaboration with Kirloskar Oil Engines (KOE), which currently holds a 17.39 per cent stake in the company. M&M is in talks with KOE to buy out this stake.
“M&M has a bigger plan for the engine business and this acquisition would help the group leverage Swaraj Engines for that,” said an investment banker familiar with the development. “M&M has already had talks with Kirloskar Oil and the deal is most likely to happen soon.”
“As a policy we do not comment on market speculation,” said a M&M spokesperson. A mail sent to KOE did not get any response.
On Thursday’s stock price of Rs 310 a share, Swaraj Engines’ market capitalisation is Rs 385 crore and KOE’s stake in the company is valued at Rs 67 crore at this price. But an acquisition of the 17.39 per cent stake by M&M would trigger an open offer. Sebi’s guidelines makes it mandatory to give an open offer to buy an additional 20 per cent stake in case of acquisition of any 15 per cent stake in a company. At the current market price, a 37.39 per cent stake is valued at Rs 144 crore.
“The sale of stake by KOE would help it focus on its own business,” said another banker familiar with the talks.
M&M early this year sold its 14 per cent stake in light commercial vehicle maker Swaraj Mazda to Japanese co-promoter Sumitomo for Rs 40 crore. With this acquisition, Sumitomo’s stake increased to 53.5 per cent from 39.5 per cent earlier. The company sold the stake as it has a plan to develop commercial vehicles in a joint venture with US truck major International Truck & Engine Corporation.
http://www.business-standard.com/india/news/mm-may-buy-kirloskar/s-stake-in-swaraj-engines/371223/
Abhineet Kumar / Mumbai September 25, 2009, 0:51 IST
The company plans to expand its diesel engine business.
Mahindra & Mahindra (M&M), India’s largest tractor maker, is planning to consolidate its stake in Swaraj Engines, as part of a plan to expand the disel engine business. M&M acquired a 33.2 per cent stake in Swaraj Engines and a 14 per cent stake in Swaraj Mazda through its acquisition of Punjab Tractors in 2007.
Swaraj Engines, 23 years old, provides diesel engines for Swaraj Tractors. The company was formed in technical collaboration with Kirloskar Oil Engines (KOE), which currently holds a 17.39 per cent stake in the company. M&M is in talks with KOE to buy out this stake.
“M&M has a bigger plan for the engine business and this acquisition would help the group leverage Swaraj Engines for that,” said an investment banker familiar with the development. “M&M has already had talks with Kirloskar Oil and the deal is most likely to happen soon.”
“As a policy we do not comment on market speculation,” said a M&M spokesperson. A mail sent to KOE did not get any response.
On Thursday’s stock price of Rs 310 a share, Swaraj Engines’ market capitalisation is Rs 385 crore and KOE’s stake in the company is valued at Rs 67 crore at this price. But an acquisition of the 17.39 per cent stake by M&M would trigger an open offer. Sebi’s guidelines makes it mandatory to give an open offer to buy an additional 20 per cent stake in case of acquisition of any 15 per cent stake in a company. At the current market price, a 37.39 per cent stake is valued at Rs 144 crore.
“The sale of stake by KOE would help it focus on its own business,” said another banker familiar with the talks.
M&M early this year sold its 14 per cent stake in light commercial vehicle maker Swaraj Mazda to Japanese co-promoter Sumitomo for Rs 40 crore. With this acquisition, Sumitomo’s stake increased to 53.5 per cent from 39.5 per cent earlier. The company sold the stake as it has a plan to develop commercial vehicles in a joint venture with US truck major International Truck & Engine Corporation.
http://www.business-standard.com/india/news/mm-may-buy-kirloskar/s-stake-in-swaraj-engines/371223/
Thursday, September 17, 2009
India Inc settles for smaller M&A deals
India Inc settles for smaller M&A deals
Abhineet Kumar / Mumbai September 17, 2009, 0:14 IST
ICICI Bank’s Global Head (Investment Banking) Kalpesh Kikani says the time for multi-billion dollar deals is over. “India Inc’s appetite for large deals has gone down. In any case, financing such deals would be tough,” he says.
Kikani should know; his bank achieved the highest $434 million value of deals in the mid-size segment in the first half of 2009.
M&As are back on the radar for Indian companies, but with two vital changes. First, the average size of the deals are much smaller compared to the earlier years; and second, overseas acquisitions have taken a backseat.
In July and August this year, for example, Indian companies were involved in 34 domestic deals worth $543 million, with an average size of just $16 million. Outbound deals have shrunk to $90 million against $4.9 billion in the corresponding period of the previous year, according to data provided by Grant Thornton.
Consider the Tata Group, which set a scorching pace on acquisitions in 2007 and 2008 — the $12.2 billion Corus deal happened in 2007 and the $2.3 billion Jaguar Land Rover deal in 2008. In 2009, the group’s only acquisition is that of Sea Rock hotel in Mumbai by its group company, Indian Hotels, for Rs 680 crore ($142 million).
Experts see many reasons that deal sizes and overseas acquisitions have fallen drastically. The big boost to overseas acquisitions by Indian companies was access to easy credit from banks before the credit crisis.
“We are coming from an era of excesses when leveraging norms went for a six,” says Saurabh Agrawal, managing director and head of investment bank at DSP Merrill Lynch. Companies leveraged their balance sheet seven to eight times of the operating profit as there was excess liquidity available in the system at that point of time, explained Agrawal.
Now with banks getting cautious, leveraging levels have come down. This has led companies to using their internal accruals. So large-tickets deals such as the proposed $ 23 billion Bharti Airtel and MTN deal can only be an exception now.
“Risk management has become more important now,” says B R Jaju, who as chief financial officer was involved in many acquisitions by Crompton Greaves in the last couple of years. One of those included French company Sonomatra in 2008. He moved out of the company this month to join Welspun Gujarat as director and chief financial officer. “We can’t expect the earlier aggression for large-size deals at least for the next one year,” he says.
Experts say most of the acquisitions by Indian companies in the past were heavily leveraged and now a majority of these predators are struggling to service the loans for acquisitions. The big Indian companies now realise that it is not easy to integrate large facilities bought from outside owing to serious cultural and regulatory issues in moving production to India.
Instead, domestic companies are looking at lower-risk risk small acquisitions like the recent deals of Lupin and brand buy-outs to boost business.
Sujay Shetty, associate director of PricewaterhouseCoopers, says “Now, large loans for acquisitions have dried up for Indian companies. Thankfully, wisdom prevails in most boardrooms than simply jumping into acquisitions without proper homework.”
http://www.business-standard.com/india/news/india-inc-settles-for-smaller-ma-deals/370347/
Abhineet Kumar / Mumbai September 17, 2009, 0:14 IST
ICICI Bank’s Global Head (Investment Banking) Kalpesh Kikani says the time for multi-billion dollar deals is over. “India Inc’s appetite for large deals has gone down. In any case, financing such deals would be tough,” he says.
Kikani should know; his bank achieved the highest $434 million value of deals in the mid-size segment in the first half of 2009.
M&As are back on the radar for Indian companies, but with two vital changes. First, the average size of the deals are much smaller compared to the earlier years; and second, overseas acquisitions have taken a backseat.
In July and August this year, for example, Indian companies were involved in 34 domestic deals worth $543 million, with an average size of just $16 million. Outbound deals have shrunk to $90 million against $4.9 billion in the corresponding period of the previous year, according to data provided by Grant Thornton.
Consider the Tata Group, which set a scorching pace on acquisitions in 2007 and 2008 — the $12.2 billion Corus deal happened in 2007 and the $2.3 billion Jaguar Land Rover deal in 2008. In 2009, the group’s only acquisition is that of Sea Rock hotel in Mumbai by its group company, Indian Hotels, for Rs 680 crore ($142 million).
Experts see many reasons that deal sizes and overseas acquisitions have fallen drastically. The big boost to overseas acquisitions by Indian companies was access to easy credit from banks before the credit crisis.
“We are coming from an era of excesses when leveraging norms went for a six,” says Saurabh Agrawal, managing director and head of investment bank at DSP Merrill Lynch. Companies leveraged their balance sheet seven to eight times of the operating profit as there was excess liquidity available in the system at that point of time, explained Agrawal.
Now with banks getting cautious, leveraging levels have come down. This has led companies to using their internal accruals. So large-tickets deals such as the proposed $ 23 billion Bharti Airtel and MTN deal can only be an exception now.
“Risk management has become more important now,” says B R Jaju, who as chief financial officer was involved in many acquisitions by Crompton Greaves in the last couple of years. One of those included French company Sonomatra in 2008. He moved out of the company this month to join Welspun Gujarat as director and chief financial officer. “We can’t expect the earlier aggression for large-size deals at least for the next one year,” he says.
Experts say most of the acquisitions by Indian companies in the past were heavily leveraged and now a majority of these predators are struggling to service the loans for acquisitions. The big Indian companies now realise that it is not easy to integrate large facilities bought from outside owing to serious cultural and regulatory issues in moving production to India.
Instead, domestic companies are looking at lower-risk risk small acquisitions like the recent deals of Lupin and brand buy-outs to boost business.
Sujay Shetty, associate director of PricewaterhouseCoopers, says “Now, large loans for acquisitions have dried up for Indian companies. Thankfully, wisdom prevails in most boardrooms than simply jumping into acquisitions without proper homework.”
http://www.business-standard.com/india/news/india-inc-settles-for-smaller-ma-deals/370347/
Wednesday, September 16, 2009
'Appetite is coming back for M&A deals'
'Appetite is coming back for M&A deals'
Q&A: Saurabh Agrawal, Head of Investment Banking, DSP Merrill Lynch
Abhineet Kumar & Sidhartha / Mumbai September 16, 2009, 0:19 IST
With the economic situation improving, merger and acquisitions (M&As) are back on the radar as companies look to gain size. Though companies are still cautious, given the experience over the last few months, DSP Merrill Lynch Managing Director and Head of Investment Banking Saurabh Agrawal tells Abhineet Kumar and Sidhartha the appetite for M&As will improve in the coming days. Excerpts:
Many Indian companies, which had acquired firms overseas in the last three-four years, are going through a rough phase. What does this mean for overseas acquisitions?
The acquisitions made during 2005 to 2008 would have made Indian companies wiser in their segments and helped them to understand the dynamics and nuances of M&As. Most of these companies are going through a restructuring phase. They have been focusing on reducing leverage either by issuing additional equity or through cutting cost. Once the restructuring gets over, we will see a strong foundation for the next round of growth.
What will drive the outbound deals now?
We expect more manufacturing-driven deals for companies to scale up. In telecom, the scope is very limited. In the forging space, when the situation settles down globally, we will see the appetite coming back.
The last round of overseas acquisitions came on the back of availability of cheap finances. With the cost equation changing, will there be an impact on the M&A appetite?Basically, we are coming from an era of excesses, which took place way back in 2006 and 2007 when leveraging norms went through the roof. In some cases, leveraging was equivalent to seven-eight times of Ebitda (operating profit). There was an excess of liquidity in the system. There were clubbing of a lot of things resulting in a crisis in 2008. But right now, the appetite is coming back for good deals. While people are still cautious, money is available for such deals. People are more focused on the kind of assets a company is buying.
On the domestic front, which sectors are ripe for consolidation and where are enquiries coming from?
There is interest in pharmaceuticals, IT and media. My guess is that these sectors will interest foreign players. In case of media and telecom, there are so many players that consolidation has to take place.
Did private equity (PE) firms, which were complaining of high valuations last year, missed out when the valuation hit a low?
It takes time for PE deals to be come. What we saw was a very good rebound that took place in the capital markets. If the market had not come back, it would have been a PE-driven market. Private equity is always competing with the capital markets as a source of capital.
Recent experiences show that companies which have tapped the market through initial public offers have not performed well on listing. Should we expect that pricing will be more sober in the coming days?
The days of 25 to 30 per cent returns on listing are over. Now issues get priced optimally and it is primarily led by institutions. So, today the roadshow has to discover the demand and what should be the pricing, and then there is book building. Pretty much the system has moved up to optimal pricing.
But the response in the retail segment was not really enthusiastic?
The retail segment is going to be under pressure. Fund raising in the primary market is being driven more and more through institutions. When institutions are investing, they are doing it for the long term.
Has the Merrill Lynch India’s strategy changed following its acquisition by Bank of America (BofA) last year and what is the status on restructuring of its operations?
We were a pure investment bank prior to the merger. Now with BofA taking over, we are more of an end-to-end financial powerhouse. We have many more products and a large balance sheet. As Merrill Lynch India, we always had the ambition of getting a banking licence and now we have that. The integration is pretty much done. Just a few more formalities have to be completed.
http://www.business-standard.com/india/news/appetite-is-coming-back-for-ma-deals/370189/
Q&A: Saurabh Agrawal, Head of Investment Banking, DSP Merrill Lynch
Abhineet Kumar & Sidhartha / Mumbai September 16, 2009, 0:19 IST
With the economic situation improving, merger and acquisitions (M&As) are back on the radar as companies look to gain size. Though companies are still cautious, given the experience over the last few months, DSP Merrill Lynch Managing Director and Head of Investment Banking Saurabh Agrawal tells Abhineet Kumar and Sidhartha the appetite for M&As will improve in the coming days. Excerpts:
Many Indian companies, which had acquired firms overseas in the last three-four years, are going through a rough phase. What does this mean for overseas acquisitions?
The acquisitions made during 2005 to 2008 would have made Indian companies wiser in their segments and helped them to understand the dynamics and nuances of M&As. Most of these companies are going through a restructuring phase. They have been focusing on reducing leverage either by issuing additional equity or through cutting cost. Once the restructuring gets over, we will see a strong foundation for the next round of growth.
What will drive the outbound deals now?
We expect more manufacturing-driven deals for companies to scale up. In telecom, the scope is very limited. In the forging space, when the situation settles down globally, we will see the appetite coming back.
The last round of overseas acquisitions came on the back of availability of cheap finances. With the cost equation changing, will there be an impact on the M&A appetite?Basically, we are coming from an era of excesses, which took place way back in 2006 and 2007 when leveraging norms went through the roof. In some cases, leveraging was equivalent to seven-eight times of Ebitda (operating profit). There was an excess of liquidity in the system. There were clubbing of a lot of things resulting in a crisis in 2008. But right now, the appetite is coming back for good deals. While people are still cautious, money is available for such deals. People are more focused on the kind of assets a company is buying.
On the domestic front, which sectors are ripe for consolidation and where are enquiries coming from?
There is interest in pharmaceuticals, IT and media. My guess is that these sectors will interest foreign players. In case of media and telecom, there are so many players that consolidation has to take place.
Did private equity (PE) firms, which were complaining of high valuations last year, missed out when the valuation hit a low?
It takes time for PE deals to be come. What we saw was a very good rebound that took place in the capital markets. If the market had not come back, it would have been a PE-driven market. Private equity is always competing with the capital markets as a source of capital.
Recent experiences show that companies which have tapped the market through initial public offers have not performed well on listing. Should we expect that pricing will be more sober in the coming days?
The days of 25 to 30 per cent returns on listing are over. Now issues get priced optimally and it is primarily led by institutions. So, today the roadshow has to discover the demand and what should be the pricing, and then there is book building. Pretty much the system has moved up to optimal pricing.
But the response in the retail segment was not really enthusiastic?
The retail segment is going to be under pressure. Fund raising in the primary market is being driven more and more through institutions. When institutions are investing, they are doing it for the long term.
Has the Merrill Lynch India’s strategy changed following its acquisition by Bank of America (BofA) last year and what is the status on restructuring of its operations?
We were a pure investment bank prior to the merger. Now with BofA taking over, we are more of an end-to-end financial powerhouse. We have many more products and a large balance sheet. As Merrill Lynch India, we always had the ambition of getting a banking licence and now we have that. The integration is pretty much done. Just a few more formalities have to be completed.
http://www.business-standard.com/india/news/appetite-is-coming-back-for-ma-deals/370189/
Patni brothers revive stake sale talks
Patni brothers revive stake sale talks
Abhineet Kumar / Mumbai September 14, 2009, 0:16 IST
The promoters of Patni Computer Systems and private equity firm General Atlantic have revived consultations with potential buyers to sell a part of their stake in the company.
Promoters Narendra Patni and his younger brothers Gajendra and Ashok hold equal stakes totalling 48.3 per cent in India’s sixth largest software exporter. PE firm General Atlantic holds about 18 per cent. An attempt by the two younger brothers and the PE firm to sell a part of their stake failed two years ago because Narendra Patni, who was the executive chairman, was not ready to give up operational control.
That issue is no longer relevant since Narendra Patni has become non-executive chairman after appointing Jeya Kumar as the chief executive officer in February this year. “This will facilitate the whole process since the acquirer can now have management control,” sources familiar with the development said.
“The consultation process for potential buyers has once again started,” said a person close to the promoters’ family, confirming the interest of the two brothers and the PE firm to monetise a part of their stake.
“In the last six months, the valuation of the company has jumped almost to the level it was about two years back,” said an investment banker familiar with the consultations initiated by the promoters.
Asked about the talks, Surjeet Singh, Patni's chief financial officer, said, "Patni does not comment on speculation."
The Patni stock has gained significantly from an all-time low of Rs 94 a share on March 2 this year to Rs 463 a share on August 26. The stock closed at Rs 395 a share on Friday, giving it a market capitalisation Rs 5,069 crore.
In 2007, the company had an average share price of Rs 436 a share. The low for the year was Rs 300 and it achieved an all-time high of Rs 566 a share on speculation that the promoters would sell their sales. PE firms Apax Partners and Tech Pacific Group were interested in buying the stake on offer in 2007, when the two brothers were offering their 12 per cent stakes in addition to about 12.9 per cent stake offered by General Atlantic.
Narendra Patni is also interested in increasing his stake because his 32-year-old son Anirudh Patni is a senior vice- president in the company and a larger stake could help his son succeed him.
http://www.business-standard.com/india/news/patni-brothers-revive-stake-sale-talks/370014/
Abhineet Kumar / Mumbai September 14, 2009, 0:16 IST
The promoters of Patni Computer Systems and private equity firm General Atlantic have revived consultations with potential buyers to sell a part of their stake in the company.
Promoters Narendra Patni and his younger brothers Gajendra and Ashok hold equal stakes totalling 48.3 per cent in India’s sixth largest software exporter. PE firm General Atlantic holds about 18 per cent. An attempt by the two younger brothers and the PE firm to sell a part of their stake failed two years ago because Narendra Patni, who was the executive chairman, was not ready to give up operational control.
That issue is no longer relevant since Narendra Patni has become non-executive chairman after appointing Jeya Kumar as the chief executive officer in February this year. “This will facilitate the whole process since the acquirer can now have management control,” sources familiar with the development said.
“The consultation process for potential buyers has once again started,” said a person close to the promoters’ family, confirming the interest of the two brothers and the PE firm to monetise a part of their stake.
“In the last six months, the valuation of the company has jumped almost to the level it was about two years back,” said an investment banker familiar with the consultations initiated by the promoters.
Asked about the talks, Surjeet Singh, Patni's chief financial officer, said, "Patni does not comment on speculation."
The Patni stock has gained significantly from an all-time low of Rs 94 a share on March 2 this year to Rs 463 a share on August 26. The stock closed at Rs 395 a share on Friday, giving it a market capitalisation Rs 5,069 crore.
In 2007, the company had an average share price of Rs 436 a share. The low for the year was Rs 300 and it achieved an all-time high of Rs 566 a share on speculation that the promoters would sell their sales. PE firms Apax Partners and Tech Pacific Group were interested in buying the stake on offer in 2007, when the two brothers were offering their 12 per cent stakes in addition to about 12.9 per cent stake offered by General Atlantic.
Narendra Patni is also interested in increasing his stake because his 32-year-old son Anirudh Patni is a senior vice- president in the company and a larger stake could help his son succeed him.
http://www.business-standard.com/india/news/patni-brothers-revive-stake-sale-talks/370014/
Thursday, September 10, 2009
'Rationale for IT deals remains compelling'
'Rationale for IT deals remains compelling'
Q&A: Prahlad Shantigram
Abhineet Kumar / Mumbai September 9, 2009, 0:20 IST
The downturn in the global economy affected most investment bankers and Standard Chartered, with virtually no significant deals achieved in this financial year so far, is no exception. However, the UK-based bank, which has a special focus on Asian markets, is working on two deals that could make it the top deal-maker at the end of the year. The bank is co-advisor to Bharti Airtel in its merger talks with South Africa’s MTN Group. Besides, it is a sale-side co-advisor for Aircel’s plan to sell telecom towers. Prahlad Shantigram, global head of mergers and acquisitions (M&As) at the bank, talks about the changed environment for M&As in an interview with and email response to Abhineet Kumar. Excerpts:
Can we expect further domestic consolidation due to over-leveraging by some companies?We do expect a pick-up in M&A activity, not just as a result of overleveraging necessarily. With the economy coming back on track, the overleveraging impact will get mitigated to an extent. Coupled with this is the return-of-risk appetite, which is a key driver of acquisitions. Also, remember that equity markets have improved and companies can raise capital efficiently now to counter any leverage issue.
Unlike overseas acquisitions, funding for domestic deals is costlier as banks are not allowed to lend for buying equity. Do we have enough financial support to accelerate pure domestic deals?Significant regulatory and structural challenges remain for acquisition financing for domestic deals through debt. This leaves these to be essentially funded by equity — whether the acquirers’ own cash or private and public equity issuances.
Has the tide of Indian companies looking for overseas acquisitions turned back?Indian corporates have definitely become more careful about looking at international transactions, but no, the tide has not turned back. The global economy is far from convincingly being out of the woods. This naturally increases the threshold of strategic necessity that any deal has to clear for it to be a ‘must-do.’ Add to this the relative lower availability of financing for deals (which, by the way, is changing) and you have a fall in this kind of deal flow. As the economic situation improves, we do expect more activity.
How has the cost of acquisition finance for cross-border deals changed vis-à-vis the last year’s peak?The spreads for cross-border acquisition finance have tightened significantly recently as liquidity comes back. You must remember that the benchmark itself has fallen significantly. So, the overall costs may not be that much different.
Access to financing has improved for cross-border deals, but how far have things changed for leveraged buyouts?You are right — access has improved. I suspect that you will not see the kind of “covenant lite”-type financing or even the leverage levels that you saw globally in the recent boom come back in a hurry. We must be careful not to confuse this with debt financing for well-structured strategic transactions, for which the appetite is still there.
Apart from Bharti Airtel, can we expect that more Indian telecom companies will look for overseas acquisitions, especially in Africa?Without getting into details, let me say that if you were a telecom company looking for growth and low-penetrated markets, Africa is an obvious choice.
What is your view on the potential for domestic and cross-border deals within the IT industry?The fundamental rationale for IT deals, both inbound and outbound, remains compelling. Indian players will continue to buy specific competencies and market access in the rest of the world while overseas companies will continue to value India’s offshore capabilities. In addition, significant ownership in this with financial sponsors with limited investment horizon will further drive M&A activity
http://www.business-standard.com/india/news/rationale-for-it-deals-remains-compelling/369486/
Q&A: Prahlad Shantigram
Abhineet Kumar / Mumbai September 9, 2009, 0:20 IST
The downturn in the global economy affected most investment bankers and Standard Chartered, with virtually no significant deals achieved in this financial year so far, is no exception. However, the UK-based bank, which has a special focus on Asian markets, is working on two deals that could make it the top deal-maker at the end of the year. The bank is co-advisor to Bharti Airtel in its merger talks with South Africa’s MTN Group. Besides, it is a sale-side co-advisor for Aircel’s plan to sell telecom towers. Prahlad Shantigram, global head of mergers and acquisitions (M&As) at the bank, talks about the changed environment for M&As in an interview with and email response to Abhineet Kumar. Excerpts:
Can we expect further domestic consolidation due to over-leveraging by some companies?We do expect a pick-up in M&A activity, not just as a result of overleveraging necessarily. With the economy coming back on track, the overleveraging impact will get mitigated to an extent. Coupled with this is the return-of-risk appetite, which is a key driver of acquisitions. Also, remember that equity markets have improved and companies can raise capital efficiently now to counter any leverage issue.
Unlike overseas acquisitions, funding for domestic deals is costlier as banks are not allowed to lend for buying equity. Do we have enough financial support to accelerate pure domestic deals?Significant regulatory and structural challenges remain for acquisition financing for domestic deals through debt. This leaves these to be essentially funded by equity — whether the acquirers’ own cash or private and public equity issuances.
Has the tide of Indian companies looking for overseas acquisitions turned back?Indian corporates have definitely become more careful about looking at international transactions, but no, the tide has not turned back. The global economy is far from convincingly being out of the woods. This naturally increases the threshold of strategic necessity that any deal has to clear for it to be a ‘must-do.’ Add to this the relative lower availability of financing for deals (which, by the way, is changing) and you have a fall in this kind of deal flow. As the economic situation improves, we do expect more activity.
How has the cost of acquisition finance for cross-border deals changed vis-à-vis the last year’s peak?The spreads for cross-border acquisition finance have tightened significantly recently as liquidity comes back. You must remember that the benchmark itself has fallen significantly. So, the overall costs may not be that much different.
Access to financing has improved for cross-border deals, but how far have things changed for leveraged buyouts?You are right — access has improved. I suspect that you will not see the kind of “covenant lite”-type financing or even the leverage levels that you saw globally in the recent boom come back in a hurry. We must be careful not to confuse this with debt financing for well-structured strategic transactions, for which the appetite is still there.
Apart from Bharti Airtel, can we expect that more Indian telecom companies will look for overseas acquisitions, especially in Africa?Without getting into details, let me say that if you were a telecom company looking for growth and low-penetrated markets, Africa is an obvious choice.
What is your view on the potential for domestic and cross-border deals within the IT industry?The fundamental rationale for IT deals, both inbound and outbound, remains compelling. Indian players will continue to buy specific competencies and market access in the rest of the world while overseas companies will continue to value India’s offshore capabilities. In addition, significant ownership in this with financial sponsors with limited investment horizon will further drive M&A activity
http://www.business-standard.com/india/news/rationale-for-it-deals-remains-compelling/369486/
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