India Inc on an asset sale spree to cut debt

Question of survival for debt heavy companies, say bankers

Some of India’s top companies including the Tatas, the Birlas and Mukesh Ambani’s Reliance Industries have either sold their assets abroad or have asked bankers to find buyers this year in order to service their debt and to exit from unprofitable businesses.  

Ahmedabad-based Adani is the latest to confirm on Tuesday that they have hired Morgan Stanley to sell their port project in Australia which they acquired in 2011 for $2 billion. The Adani’s sale comes within weeks of Reliance Industries’ putting its 45% stake in its shale gas joint venture in the United States for sale at a valuation of $4.5 billion.

“It’s a question of survival for many corporates. The debt taken by some companies to buy assets abroad had become unmanageable and they did not had any other option but to sell assets to repay debt,” says Phani Sekhar, Fund Manager at Angel Broking.  

Bankers say this year till date, the Tatas have already sold their stake in Neotel in South Africa, apart from putting Tata Steel’s long products division on sale at a valuation estimated at $1.3 billion. Bharti also sold its towers in Africa after demerging it from Zain’s operations it acquired in 2010 for $ 10.7 billion (see chart).

Assets on sale
Announcement Date	Seller	Target	Acquiror	Deal Value $ (m)
09-May-14	United Spirits Ltd	Whyte & Mackay Ltd	Emperador Inc	729.00
19-May-14	Tata Group	Neotel (Pty) Ltd	Vodacom Group (Pty) Ltd	675.96
09-Jul-14	Essar Group	Aegis USA Inc	Teleperformance SA	610.00
31-Jan-14	Tata Power Co Ltd	PT Arutmin Indonesia (30%)	PT Bakrie Investindo	500.00
10-Feb-14	DLF Ltd	Amanresorts International Pte Ltd	Aman Resorts Group Ltd	358.00
31-Jan-14	Aditya Birla Nuvo Ltd	Aditya Birla Minacs Worldwide Ltd	CX Partners, Capital Square Partners	260.00
02-Jun-14	Cox & Kings Ltd	Eurocamp Ltd	Homair Vacances SA	149.45
12-Sep-14	RHC Holding Pvt Ltd	Radlink-Asia Pte Ltd	IHH Healthcare Bhd	108.44
01-Apr-14	UPL Ltd	Sipcam UPL Brasil SA (50%)	Sipcam SpA	58.50
10-Jul-14	Indian Hotels Co Ltd	Hotels (Blue Sydney Hotel)	Hind Hotels & Properties Group	29.96
13-Jan-14	Bharat Forge Ltd	FAW Bharat Forge (Changchun) Co Ltd (51.85%)	China FAW Group Corp	28.21
05-May-14	OnMobile Global Ltd	Voxmobili SA	Synchronoss Technologies Inc	26.00
08-Apr-14	Tata Steel Ltd	Tata Steel International Australasia Ltd	Steel & Tube Holdings Ltd	23.65
08-Sep-14	Bharti Enterprises Ltd	Bharti Airtel Ltd (3500 Towers 6 Countries Across Africa)	Eaton Towers LLP	0.00
13-Mar-14	Autoline Industries Ltd	Autoline Industries Ltd (American subsidiary/Autoline Industries Inc)	Undisclosed Acquiror	0.00
02-Apr-14	Essar Group	Essar Steel Processing & Distribution UK Ltd	Existing Management	0.00
08-Apr-14	Suzlon Energy Ltd	Power Station (240 MW Big Sky Wind Farm in Illinois)	Everpower Wind Holdings	0.00
23-Apr-14	Lupin Ltd	Lupin Ltd (Pharmaceutical licence - Monoclonal Antibodies (mAbs))	Yoshindo Inc	0.00
09-Jul-14	Bharti Airtel Ltd	Bharti Airtel International (Netherlands) NV ( 3,100 Towers in Four Countries Across Africa)	Helios Towers Africa Ltd	0.00
15-Oct-14	Tata Group	Tata Group (Long Products Europe business)	Klesch Group	Not closed
Source: Dealogic Analyst
Compiled by BS Research Bureau

“This year is exactly the opposite of the boom witnessed between 2007-08 when Indian companies spent billions of dollars to buy companies abroad but failed to get reasonable returns on investments. The chickens have come home to roost as a lot of top companies are grappling with how to manage debt taken to acquire these assets,” said a banker about the spurt in sale of assets by the Indian companies.

Apart from managing debt as in the case of Tata Steel and Lanco -- which is selling stake in its Australia coal mine, some companies are making the best of the good valuations fetched by their companies. Take for example, both Essar group and Aditya Birla group sold off their business outsourcing units for $610 million and $260 million as they commanded better valuation.  

“One of the idea of selling the stake in BPO was to use the cash to retire our debt and invest in new businesses,” said a Aditya Birla group official. “Besides, the BPO business was not core to the group,” the official said.

D R Dogra, MD&CEO of Care Ratings says the divestments of assets abroad are a part of the restructuring process. “The business environment in the country as well as overseas has been downbeat in the last two years. This has caused companies to review their operations -- especially offshore ones,” says he.

By rebuilding their strategies, those businesses that do not fit with the new whole are being sold off to improve the balance sheet and enhance shareholder value. “Several of these acquisitions or partnerships were done at a time when the global conditions were ebullient. Now with growth levels coming down and just about remaining stable such introspection has been called for. This is more so as some of these assets have not quite turned profitable and no longer fit in with the medium term goals of the organization,” he added.

Dogra says relatively attractive valuations of these assets could be another trigger for going ahead with such plans. Such kind of introspection is but natural when we are on the lower end of the business cycle when future strategies are reviewed and altered.

Apart from business reasons, some groups like Adani are also facing opposition from green activists in Australia which allege that its $16.5 billion coal mining project will destroy the Great Barrier Reef. Many banks have refused to fund the projects thus the group is derisking its strategy by selling its port project.