Monday, March 5, 2012

Outbound FDI and M&A


The Reserve Bank of India has published a paper/address titled “Outward Indian FDI – Recent Trends & Emerging Issues” that examines various regulatory aspects of outbound FDI by Indian companies. It considers various business aspects and comments upon regulatory issues and concerns.
The latest issue of The Economist also looks at outbound M&A from India, and analyzes the level of success that Indian outbound deals have achieved. While some deals have indeed been profitable, others may not have achieved the expected success for several reasons, including the global financial crisis that emerged at the peak of the Indian outbound M&A boom. Part of the issues identified relate to complexity in Indian corporate structures, and possible regulatory obstacles. For example, the article notes:
But to do more jumbo deals in a tougher world, Indian firms need to tackle a glaring area of weakness. This is their complex structures, which mean cash flows are spread thinly, and their dislike of issuing equity for fear of diluting their controlling shareholders. Both factors combined make it hard to marshal resources without resorting to risky levels of debt.
Nevertheless, it appears that the deal-flow on outbound Indian M&As have continued even into 2012 although the sizes of the deals have dropped in comparison with those witnessed during the boom.

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