Indian companies will sell more assets than buy as they struggle to raise capital in a volatile stock market, borrow cheaper money from lenders and as cash flow shrinks in a slowing economy, pipeline of mandates with investment bankers shows.
There are three main drivers behind this emerging paradigm, says Frank Hancock, the managing director and head of corporate finance at Barclays India.
First, on the demand side, India remains a key strategic destination, alongside China, for global foreign direct investment or FDI. Large companies continue to look for the opportunity to build or buy themselves a presence.
On June 26, Coca Cola chairman and chief executive Muhtar Kent said the company will invest R28,000 crore by 2020, one sixth of its global investment to build bottling plants and supply chain.
The American company wants India to be among its top five revenue earners from seven now. In July, Swedish furniture retail chain Ikea said it would invest Rs 10,500 crore in next 15-20 years in India to build retail chains.
In general, their appetite remains unaffected by what they regard as essentially short term political and economic headwinds, says Frank, whose bank has a pipeline more of sell mandates than buy.
In 2010, Barclays, second topper in merger and acquisitions volume, executed eight mandates of which seven were buy sides with one a sell, whereas within our current pipeline, more than 90% of our mandates under execution are sell side - a complete reversal of trend. Barclays is ranked number 1 for M&A in calendar 2012, after it announced 4 transactions for $12 billion.
The special situation action among companies with shortage of capital and higher debt will trigger corporate action to consolidate and sell assets, says S Ramesh, chief executive at investment bank Kotak Mahindra Capital Company. Short to medium for next 18 months, this could be the theme. Refocus by large groups to look at core and non core will trigger more sales.
"It is true that large groups are looking at core and non core assets," says VK Bansal, chairman, investment banking at Morgan Stanley India Pvt Ltd. We could see more inbound deals in healthcare, capital goods, infrastructure and industrial sectors and outbound hunt for oil, gas, coal and iron ore assets. Steel to oil refiner Essar group has mandated Standard Chartered Bank to sell their back office company Aegis Ltd and cement