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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.
