Foreign firms lead in asset purchase after Essar Oil buy

MNCs pick up Rs 1.15 lakh crore of assets since January versus Rs 35,000 crore by local firms

With Russian oil major Rosneft's acquisition of Essar Oil and related assets for a staggering Rs 86,000 crore, foreign companies are now leading in acquiring the assets of debt-heavy Indian companies. Since 2011, foreign firms have acquired Rs 1.5 lakh crore worth of assets from stressed Indian companies, compared with local companies' purchase of Rs 83,629 crore worth of assets.

Foreign companies' acquisition spree picked up pace in January this year, with Rosneft, global fund Brookfield Asset Management and Canada-based billionaire Prem Watsa-owned Fairfax Holdings picking up Indian assets worth Rs 1.15 lakh crore (see chart). Indian companies have bought Rs 35,000 crore worth of assets so far in 2016.

“At the macro level, India currently is the best place to invest in the world right now,” said Harish H V, partner — India Leadership team, Grant Thornton India, a global consulting and audit firm. “Besides, foreign companies are ready to pay a premium for entry into the Indian market where they do not have any presence. Lower cost of funds for foreign companies compared to local companies is another big incentive why foreign companies are more aggressive in acquiring local assets.”

According to bankers, foreign companies are finding the Indian growth story attractive considering the slowdown in other parts of the world including China.  “Essar Oil is operating in the promising Indian market, one of the largest and rapidly developing economies in the world,” Ilya Sherbovich, managing partner, UCP, said about buying stake in Essar Oil along with Rosneft and Trafigura.

Local companies are happy that they’re getting attractive bids. “There were many offers from foreign companies to buy our asset. Rosneft and its partners’ offer was the best for us,” said Prashant Ruia, director, Essar Group.

Among Indian companies, the Aditya Birla Group and the Ahmedabad-based Adani Group were the most aggressive in buying assets from stressed companies. Birla Group-owned UltraTech took over Jaypee group’s cement companies for Rs 16,000 crore, while the Adanis took over ADAG Group’s transmission tower company for Rs 2,000 crore early this month after buying Lanco and Avantha’s power projects, and two port projects in Odisha and Tamil Nadu. Tata Power also took over Welspun's solar power assets for Rs 9,249 crore.

According to analysts, sale of assets is good news for both Indian banks and for the stressed companies. “Indian banks have become very forceful in addressing the problem of bad loans. Indian promoters may have little option but to sell profitable assets to reduce debt and this has been the case for the past two years,” Sanjiv Prasad of Kotak Institutional Equities wrote in a note.

In the coming months, analysts said more assets would be acquired by foreign companies. The Avantha Group is set to announce the sale of its Jhabua power project to a stressed asset fund floated by Tata Power and ICICI Venture Funds Management Company.

“We can see more such deals if banks start cooperating with the promoters of stressed assets and take a haircut. In most deals signed this year, banks had to take a significant haircut so that the transaction with a new owner could take place,” said a banker asking not to be named.