Friday, November 03, 2006: Impressed by the ability of the Indian companies to make smart acquisitions as well as turn around loss-making private and public companies abroad, foreign institutions and overseas banks have increased their lending to Indian companies for investment abroad.

Interestingly, the $5 billion they have lent in the first four months of this fiscal (till August) to Indian companies is double of what they have lend during the same period in the last fiscal, secretary (industrial policy and promotion), commerce and industry ministry, Ajay Dua, told FE.

He added that the total lending of foreign institutions to Indian companies has gone up to $17 billion last fiscal, up from from $13 billion in the fiscal prior to last. Overseas banks have started believing in the ability of the Indian companies to make operations profitable, Dua said.

In the case of leveraged buy-outs LBO), the foreign financial institutions are not only looking at the assets being purchased by the Indian companies, but also the profitability and the productivity of those companies. The FDI outflows from India in 2005-06 was $4.5 billion against an inflow of $5.6 billion during the same period. According to a recent CII-Crisil study, in 2005-06(till September), the average amount of investment of India companies abroad was roughly $ 61 million with the largest investment being $777 million and the smallest being $1.32 million.

Dua said this trend of FDI outflows increasing will only continue as Indian companies are showing an increasing appetite for global acquisitions.

He said, “Buying foreign companies gives them access to overseas markets. The access, coupled with the credibility the Indian companies gain through such a move, helps them to sell their brands abroad without undertaking a separate exercise for brand building.”

Source: UNCTAD

Indian companies are also turning around loss-making private and public companies abroad by shifting a part of the operations to India and also by cost-cutting management initiatives, he said.

Said Jayesh Desai, national director (transaction advisory services), Ernst and Young, “The trend started with liberalisation of regulations, from a case by case approval to the government presently permitting automatic approval for Indian companies to invest abroad of up to 200% of its net worth.

Besides, Indian companies are quickly learning the game as they have started using debt financing. They will have to now start learning to use equity for these transactions. This will help them scale up from $10-20 million deals to deals above $1 billion.”

Vivek Bharati, advisor (National Policy, Programme & Projects), Ficci, said, “FDI outflow will increase especially in knowledge driven and the engineering sectors. The companies, after firmly establishing themselves in the do­­mestic market, take over foreign companies or have joint ventures with them to acquire competencies that they don’t have and also for getting major market shares.”

Source: http://www.financialexpress.com/fe_full_story.php?content_id=145305