HOSTILE takeovers are generally rare in India, and many overseas Indian entrepreneurs who in the past tried to acquire rivals in the country, have had to beat a hasty retreat. Non-resident Indian (NRI) businessmen like the UK-based Swraj Paul, or the late Manu Chhabria from Dubai had suffered indignities when they tried to buy Indian firms.
But times have changed, and Indian entrepreneurs living abroad have also become extremely powerful with access to tens of billions of dollars. So domestic Indian businesses are now warily looking over their shoulders, even as they try to consolidate their positions.
International steel tycoon L.N. Mittal’s success in acquiring French rival Arcelor for a whopping $32.5 billion recently – despite stiff opposition from the French government and the group controlling the world’s second largest steel company – has created shudders in the Indian steel industry.
Last week, Ratan Tata, chairman of the Tata group – and also chairman of Tata Steel – announced that the industrial group would raise its stake in the company from about 25 per cent to almost 35 per cent over the next few months. The move is to safeguard the promoters’ stake in the company, said Tata, and to deter hostile takeovers.
Mittal, who is also visiting India, had announced after his successful acquisition of Arcelor, that he would next be looking at opportunities in India and China. With the promoters having barely 25 per cent stake in Tata Steel, it was only a matter of time before the likes of Mittal, the London-based NRI, cast their eyes on it.
The Tatas have traditionally had a minor stake in most of their top companies, including Tata Steel and Tata Motors. In the past, they had less than 10 per cent control over their companies, but in recent years Ratan Tata has spearheaded a drive to increase the group’s stake in some of the major units.
Tata Steel itself is on the verge of a massive expansion, involving a capital expenditure of over $15 billion, to be incurred over the next 10 years. The $4.8 billion steel giant hopes to increase production to 30 million tonnes by then. The company hopes to raise $1.4 billion from the overseas markets to fund the first phase of its expansion.
Besides expanding its existing facilities at Jamshedpur, Tata Steel plans three new greenfield projects in Orissa, Chhatisgarh and Jharkhand. It is also investing almost $100 million in a ferro-chrome project in South Africa.
INDIA’S steel industry is witnessing a lot of action. With the economy growing at a brisk clip of 8.0 per cent-plus per annum, demand for steel is soaring. Despite most of the producers raising their capacities, India has had to import steel to meet its growing requirements.
Imports, in fact, have shot up from 1.5 million tonnes about three years ago, to 3.75 million tonnes this year. Many international and domestic majors have unveiled ambitious plans to set up new steel plants, but there have been huge delays in executing the projects.
Steel consumption has increased by 10 per cent on a compounded basis over the last three years, but production has risen by just 6.5 per cent. India produces about 40 million tonnes of steel annually, and growing demand will see production rise to 110 million tonnes in five years.
The single biggest foreign investment proposal in India relates to steel. Posco, the South Korean steel giant, had announced an $11.3 billion project in the eastern state of Orissa, where it hopes to put up a 12 million-tonne steel plant. However, the project has run into controversies, with some political parties raising objections to the state government’s plans to hand over captive iron ore mines to the company.
Posco was doing a rethink on its mega investment in Orissa, after delays occurred in the handing over of the mines. Soung-Sik Cho, managing director, Posco India, warned that the entire project was in jeopardy if the captive mines were not given to the company.
Thousands of protestors – most of them apparently organized by politicians opposed to Chief Minster Navin Patnaik – demonstrated last month in the state capital, Bhubaneshwar, demanding scrapping of the project. They claim thousands of villagers would be displaced because of the project.
The government, however, says that not more than 500 families would be dislocated, and the project would provide thousands of jobs. Besides Posco, other Indian steel majors, including Essar Steel and Jindal Steel, have plans to set up units in Orissa.
Mittal has announced plans for an $8.7 billion, 12 million-tonne steel plant in the neighbouring state of Jharkhand. Japan’s Nisshin Steel Company also plans to start a unit in India, to meet the growing demand from Japanese automobile companies.
INDIA’S financial and commercial capital is frequently referred to (by government leaders) as a future Shanghai and the biggest financial centre between Europe and the Far East.
Politicians and bureaucrats have developed a vested interest in projecting this image for the crumbling metropolis, as it enables them to justify spending public money by flying off to distant lands on ‘study tours’ and to attract the ever-elusive foreign investments.
But as happened last July, the city’s transport infrastructure gave way last week, following some heavy showers, and millions of Mumbai residents stoically bore untold suffering. On July 26, 2005, the city witnessed unprecedented rains – of nearly 1,000 mm – which crippled Mumbai.
Government leaders justified their inaction by claiming that such heavy rains could have led to the collapse of a metropolis anywhere in the world. But last week, it rained heavily on five consecutive days – but not more than 200 mm on any given day – yet the city’s tottering transport infrastructure crumbled.
India’s premier city has inherited its infrastructure from colonial times, and governments over the years have failed to invest in upgrading it, or building new ones. The city’s storm-water drainage system goes back about 150 years, and the Bombay Municipal Corporation (BMC), riddled with corruption, has failed to maintain the extensive underground network.
A few heavy showers lead to water logging, resulting in breakdowns in the city’s relatively efficient suburban railway service, which serves six million commuters daily. All the major highways and roads also get flooded, trapping motorists in nightmarish snarls. Worse, last week, even the airport runway was submerged under water, forcing the authorities to shut down the facility for a few hours, and diverting flights to other cities.
Much of the havoc wrought by the floodwaters could have been avoided, had the authorities been alert to criminal activities of slumlords and unscrupulous builders. For years the authorities have turned a blind eye to the blatant land grabbing indulged in by a powerful mafia, which has encroached on public land owned by the airports authority, the railways, ports, the civic body, and the state government.
The land mafia has also encroached on riverbeds, hill slopes, mangroves, forests and beaches, and many politicians and bureaucrats have provided them protection. All this illegal activity has virtually choked off the outlets for the excess rainwater to flow into the sea, leading to flooding in low-lying areas.
Mumbai’s future prospects, and its international ‘image,’ have taken a severe beating with last week’s chaos following the heavy rains. Let alone competing with the likes of Shanghai or Singapore, it would find it difficult to woo investments away from potential Indian rivals including Bangalore and Hyderabad.