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| May 15, 2006 | Monday | Rabi-us-Sani 16, 1427 |
Indian group eyeing $3bn investment in Bangladesh
THE fate of the largest foreign direct investment (FDI) proposal into Bangladesh, and also the largest overseas investment by an Indian business group, is to be decided by the Bangladeshi government over the next few weeks.
The $18 billion, Mumbai-based Tata group has proposed a massive $3 billion investment in four major projects in Bangladesh. The original investment, proposed by the Tatas in 2004, amounted to $2 billion, but earlier this month the group raised it by another billion dollars.
Sources at Bombay House – the group headquarters here – say that the decision by the Bangladesh government is expected by the end of June, and if the proposal gets accepted, the agreement would be signed a month later.
But opposition to the mega deal is already building up in Bangladesh, with several business associations – worried that the powerful Indian group might over-shadow domestic businesses – expressing reservations about the proposed FDI.
Last week, steel manufacturers in Bangladesh said they would oppose a deal involving long-term guaranteed gas supply to the Tatas, and wanted the government to sell gas at international prices.
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) also appeared worried about the proposed deal, and sought a higher floor price for the gas to be supplied to the Tata projects.
The $3 billion investment by the Tatas would go into four major projects – a 2.4 million tonne steel plant, two power plants (a 500 mw coal-fired one, and a 1,000 mw gas-fed plant), a million-tonne urea plant, and an open pit coalmine that will provide the raw material for the 500 mw power plant.
According to Alan Rosling, executive director, Tata Sons, if the investment materialises, it would boost Bangladesh’s gross domestic product (GDP) by nearly two per cent annually, and will significantly improve its balance of payments position.
The projects would also generate about 10,000 direct jobs, and provide employment opportunities (indirect jobs) for nearly 25,000 people. The $3 billion investment would surpass the total FDI attracted by Bangladesh so far.
Both the Bangladesh government and the Tatas have been tough negotiators, with the single most contentious issue being that of pricing of gas. Bangladesh has about 14 trillion cubic feet of proven and recoverable gas reserves, and the commodity is the key to the Tata proposal.
The Tatas want about 200 million cubic feet of gas per day (mmcfd), and talks have dragged on for a year over the pricing. Initially, the group had offered a flat price of $1.10 per thousand cubic feet of gas. The Bangladeshi government was obviously not happy with the figure, and in the meantime, global oil and gas prices shot up sharply.
In recent talks, the Tatas offered $3.10 for natural gas to be bought from state-owned Petro Bangla for its fertiliser project, and $2.60 for the steel plant, at current global prices. The gas price can vary from $2 to $4, but the floor price would be $1.5 for the first five years.
According to Rosling, the price offered by the Tatas is the highest in the region. The current price in Bangladesh is $2, and in the Middle East, it ranges between 40 cents and a dollar, he says. The FBCCI and other domestic businessmen in Bangladesh are opposed to the average floor price of $1.5.
The Tatas have also offered a 10 per cent stake to the Bangladesh government. Saifur Rahman, the Bangladeshi finance minister – who was in India last week to attend the Asian Development Bank’s meeting in Hyderabad – admitted that the revised Tata offer was much better. However, he was non-committal as to whether the government had accepted the offer.
FOR the Tatas, Bangladesh offers tremendous potential, as it is quite close to its other eastern Indian manufacturing hubs. The Tatas have a major presence in Jharkhand, and are making huge investments in Orissa, and West Bengal.
But the group also has global aspirations, and is expanding aggressively abroad. Its international operations fetched it revenues of about $4.5 billion. Besides Bangladesh, the group has identified a dozen other nations where it plans to invest huge amounts over the coming years. They include South Africa, South Korea, the UK and the US.
The group has been actively pursuing opportunities in South Africa, in diverse sectors. Earlier this month, it announced plans for a 300 mw power plant in South Africa. According to Adi Engineer, director, Tata Power, the company plans a joint venture with an international partner in the republic. It plans to invest about Rs12 billion in the power project.
Tata Motors, the group’s truck and automobiles unit, has also been signing up with international majors abroad and exploring global markets. Last year, it acquired a 21 per cent stake in Spanish bus maker, Hispano Carrocera. In 2004, Tata Motors acquired South Korea’s Daewoo Commercial Vehicles. Earlier this year, Tata Motors entered into a joint venture with Italy’s Fiat, to sell its cars through its wide nationwide network.
And last week, it floated a joint venture with Marcopolo of Brazil, for a new Rs2 billion manufacturing facility with a capacity for 7,000 buses and coaches. The Tata firm will have a 51 per cent stake in the new venture.
Ratan Tata, group chairman, notes that the joint venture would enable Tata Motors to sell its trucks and buses in Europe, Africa, the Gulf, South-East Asia, Latin America, Australia, and even in South Asia. Recently, the company launched its mini-truck, Ace, in the Sri Lankan market.
India’s largest automobile maker – with a turnover of $4.7 billion – has also established research and development centres in South Korea, Spain and the UK. About three million Tata vehicles are currently on Indian roads.
THE Indian mutual fund industry recently crossed an important milestone, when total assets under management (AUM) topped the Rs2.5 trillion-mark. AUMs, which amounted to under Rs1.5 trillion a little over a year ago, have shot up phenomenally, thanks to the bull-run on the Indian stock markets.
According to the Association of Mutual Funds in India (AMFI), mutual fund assets grew by a hefty 10 per cent in March, as investor’s ploughed money into the funds. Reliance Mutual Fund – part of the Anil Ambani-controlled Reliance Capital – had raised a record Rs57 billion from nearly a million investors for its new fund offer (NFO) in March.
During the first three months of 2006, mutual funds raised about Rs200 billion through NFOs, and much of the amount has entered the stock markets.
The Sensex, the key index on the Bombay Stock Exchange, has flared from levels of 7,000 in June last, to cross the 12,500-mark last week. Enthused by the superb performance of the capital markets, retail investors have been pouring money into mutual funds as well.
And the funds have been paying handsome dividends. Some schemes have handed out dividends of 300 per cent, while several have paid dividends ranging from 60 to 100 per cent.
There are 29 mutual funds in India today, including those set up by top international financial groups such as Prudential, Franklin Temnpleton, ABN Amro, Deutsche Asset Management, Fidelity, HSBC, ING, Morgan Stanley, Principal and Standard Chartered.
Mutual funds have been major movers in the stock markets, rivalling foreign institutional investors (FIIs). Last year, FIIs invested about $10.5 billion into the Indian stock markets. Japanese FIIs alone invested about $4.5 billion. During the first three months of 2006, FIIs injected an additional $4 billion into the Indian capital markets.
Before the opening up of the Indian economy – and the dramatic reforms in the financial services sector – the mutual fund industry was dominated by government-controlled Unit Trust of India.
However, India’s once dominant mutual fund was virtually wound up, to be replaced by UTI Mutual Fund, a dynamic fund that is giving private (including international) funds, a run for their money.
Indian mutual funds like UTI are now planning aggressive forays abroad. Finance Minister P. Chidambaram has allowed funds to invest up to $2 billion in overseas markets – through the direct equity investment route – and up to $1 billion through exchange-traded funds.
Many are planning to funds in the overseas markets, besides launching international offerings in the domestic markets.
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