With signs of green shoots showing in economies worldwide, India Inc’s appetite for overseas acquisitions got a fresh lease of life with Reliance Industries’ estimated $10-12 billion offer for a controlling interest in bankrupt LyondellBasell Industries.
The deal by India’s largest private sector company controlled by Mukesh Ambani, if closed, will make it one of the largest petrochemical outfits in the world. It will also be the second largest overseas acquisition by an Indian company, after Tata Steel bought Corus for $13 billion in 2007.
RIL has enough money power to make the deal happen. It has $4 billion in cash and $8 billion in treasury stocks, besides a favourable 0.35:1 debt-equity ratio. It also raised $660 million through treasury stocks sale recently.
In the year to October, Indian comanies acquired overseas assets worth $586 million, a sharp fall from the $13.06 billion in the same period a year ago, according to data from Grant Thornton Deal Tracker.
HSBC believes outbound activity will bounce back. About 70 per cent of HSBC’s pipeline is outbound transactions, which has remained the same as the previous year’s.
Tarun Kataria, managing director and head of corporate, investment banking and markets at HSBC, says India is sitting on the cusp of rapidly growing cross-border M&A activity.
“Indian firms are now well capitalised, are trading at circa 20x multiples, offshore markets are trading at a discount to India and financing is more readily available to Indian corporates than to competing offshore acquirers.”
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