August 28, 2006	Monday	Sha'aban 3, 1427

INDIA’S leading business group, the Tatas, last week announced the country’s largest-ever acquisition of a foreign firm by a private Indian group. The Tatas are paying $677 million to acquire a 30 per cent stake in US-based Energy Brands Inc, which markets the hugely popular water brand, Glaceau.

Ratan Tata, the chairman of the group, has been on an overseas acquisition spree and has so far invested over $1.3 billion in a slew of international beverage companies. They include the $407 million of Tetley tea in Britain by Tata Tea, and the recent $220 million acquisition of US-based Eight O’Clock Coffee by Tata Coffee.

After the Indian government liberalised rules governing overseas acquisitions – even allowing Indian banks to fund the overseas acquisitions – there has been a spate of acquisitions.

The largest overseas acquisition by far has been by state-owned energy major Oil & Natural Gas Corporation (ONGC) which paid $1.4 billion for acquiring a 15 per cent stake in an oil block of Brazilian giant Petrobras.

During 2006 alone, Indian companies have collectively invested over $6 billion in 80 cross-border deals, having surpassed all previous records. Ten of these deals – valued at over $1.5 billion – were signed in June.

Major cross-border deals that were signed this year include the $572 million acquisition of German drugs firm, Betapharm by Dr Reddy’s Laboratories, the $372 million dollar of Romanian firm Terapia, by another Indian pharma major, Ranbaxy Laboratories, and the $324 million acquisition of Belgium firm Hansen Transmission, by wind energy major Suzlon.

But overseas acquisitions accounted for less than a quarter of the total mergers and acquisitions (M&A) business India. According to a PriceWaterhouseCoopers study, India overtook China and South Korea to emerge as third in the Asia-Pacific M&A rankings, behind Japan and Australia.

A record over $25 billion worth of M&A deals were signed in the first half of 2006, exceeding last year’s figure of $23.6 billion. Analysts expect the M&A business to grow phenomenally, as there is a lot of fragmentation in the domestic sector in several segments, including banking and finance, cement, telecommunications, and information technology.

The Indian government is keen that stronger banks – both private and public – acquire some of the weaker institutions. But the stronger banks are not willing to pick up such players, as most of them are in terrible shape.

Cash-rich groups like the Tatas and the Ambanis – both the Mukesh and Anil Ambani controlled corporates – are on the prowl for new acquisitions, both within India and abroad.

THE Tata group – India’s second-largest business group has total revenues exceeding $22 billion – has been expanding its presence in the US, which accounts for a tenth of its total sales.

The 30 per cent acquisition in Energy Brands will enable Tata Tea “to be present in the unfolding crossover space in the beverages market in the US,” says R.K. Krishna Kumar, vice-chairman, Tata Tea, and a key aide of chairman Tata. He notes that the Glaceau product line of ‘vitaminwater,’ ‘smartwater,’ and ‘fruitwater,’ would help Tata Tea expand its beverage business both in the US and elsewhere. Bottled and energy drinks are the fastest-growing segments in the US.

Energy Brand, which sells five million bottles of Glaceau products daily, may opt for a public offering at a later stage, said Kumar.

According to Kishore Chaukar, managing director, Tata Industries, the group plans to invest a whopping $25 billion over the next five years in expanding its presence in sectors like automobiles, chemicals, power, steel and telecommunications. The biggest investment would be in steel (nearly $15 billion), followed by power and telecommunications (about $4.25 billion each) and automobiles ($2.12 billion).

But besides the occasional foray abroad, it would concentrate on the Indian market, where it sees tremendous potential for growth. The group has nearly a 100 companies, many operating across the globe. And it continues to grow its overseas operations at a breathtaking pace.

LAST week, for instance, Raman Dhawan, managing director, Tata Africa, revealed that the group planned to make huge investments in the mining sector in South Africa, besides 10 other African countries, including Nigeria and Kenya. Tata Africa has invested about $135 million in South Africa in recent years.

However, the cumulative investments of the Tatas in South Africa now add up to $325 million. The Tatas, besides eagerly eyeing other M&A deal in the country, plans to build three hotels in South Africa at a cost of $180 million.

Earlier this month, it acquired the truck assembly unit from Nissan Motors in South Africa for over Rs200 million. Tata Motors South Africa established a presence in the republic about 18 months ago. Today, it sells about 1,500 vehicles – mainly cars and trucks – a month in South Africa. The company also has a bus and truck assembly plant.

The South Africa plant would help Tatas sell their vehicles in other African countries. It already has a bus body building unit in Morocco.

The group plans to make South Africa the hub for its minerals and metals business as well. Last week, the Tata Steel KZN began work on the 135,000 tonne capacity ferro-chrome plant in South Africa. Ferrochrome will be exported from the South Africa plant to Asia, Europe and the US. The nearly $10 million plant will be commissioned next October.

Tata Steel is planning to acquire manganese mines in South Africa, and was also looking for coal blocks.

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THE Indian government last week decided to remove the cap on the number of special economic zones (SEZs), which had been fixed at 150 earlier. Differences within the government about SEZs led to the formation of a special empowered group of ministers, which firmly backed federal Commerce Minister Kamal Nath, who has been pushing for more such zones.

However, Finance Minister P. Chidambaram, has been opposed to the uncontrolled increase in SEZs, noting that this would result in heavy loss of revenues for the government. The group of ministers decided to review the situation after 75 SEZs become operational. Companies operating in SEZs enjoy several tax concessions.

At present, there are 28 SEZs operating in India. Nath notes that exports from SEZs have shot up by 63 per cent to Rs225 billion last year. SEZs have also generated nearly 125,000 jobs, he avers.

Several major business houses are planning to set up SEZs to avail of the tax concessions. The Mukesh Ambani group (Reliance Industries Ltd) has the most ambitious plans for SEZs across the country. Even international firms, like South Korean steel giant, Posco, and the Salim group of Indonesia, are keen to establish such zones.

According to industry estimates, the removal of the cap would result in several new proposals being floated over the coming weeks. Ultimately, there could be 350 SEZs in India. These zones are considered as ‘foreign territory,’ and companies are allowed to bring in funds and repatriate them without any restrictions.

Similarly, there is a move to see that the usual labour laws are not applicable to SEZs, but there has expectedly been stiff opposition from trade unions and the left parties to this move.

Another major problem relating to the setting up of SEZs relates to the acquisition of land. Land laws in India are opaque, and acquisition of large tracts of land results in massive controversies.

State governments in Maharashtra, Haryana and West Bengal have been facing a lot of flak after acquiring thousands of acres of land for the setting up of SEZs. The federal government has refused to intervene in the matter, claiming that land acquisition is a state subject.