By Narayanan Somasundaram
MUMBAI, Nov 18 (Reuters) - Tata Group, India's second-largest conglomerate, which has scooped up Western assets from steel to sports cars, this month put acquisition plans on hold.
It is not alone.
Corporate India's overseas ambitions are being scaled back as the global financial tailspin chokes off funding options, forcing some firms to walk away from deals. Those that made recent buys are more focused on paying off bridge loans.
Although there may be some opportunities for cash-rich firms, slowing growth and tight liquidity both at home and overseas are curbing big M&A aspirations.
"Grand plans on outbound acquisitions will be put on the backburner as access to funding is not easy," said Rohit Kapur, head of corporate finance practice at consultancy KPMG.
"For those that executed large deals over the past two years, refinancing the bridge loans is turning into a problem."
India's outbound acquisitions have fallen by a third to $14.8 billion so far this year compared to the year-ago period, Thomson Reuters data show.
Compare that to China, where acquisition volume is up 156 percent to $47.9 billion, though China Inc's cross-border acquisition plans are closely tied to the government and are less impacted by funding constraints.
Bankers say India's Infosys Technologies, which has $1.9 billion in cash and cash equivalent, refused to get into a bidding war with rival HCL Technologies for British consultancy Axon due to the uncertain conditions, though Infosys has said it was still looking at acquisitions and would be comfortable with deals in the $600-700 million range.
"The environment is not too conducive to raising funds. The under-$500 million deals that can be funded through own cash are being discussed," said T.V. Raghunath, head of M&A at Kotak Mahindra, the former Indian partner of Goldman Sachs.
India's benchmark 30-share index has more than halved in value in 2008, derailing many equity fundraising plans.
RECORD SAFE, FOR NOW
Last year's record $22.5 billion of Indian outbound M&A deals looks likely to stand for some time, although bankers say the potential deal pipeline, dominated by technology firms and oil and steel firms eyeing raw material assets, is not weak.
Bankrupt U.S. copper miner Asarco LLC said in October it was terminating a $2.6 billion deal to be bought by Indian copper maker Sterlite Industries, a unit of Vedanta Resources , after Sterlite demanded a cut in price.
Tata Motors' $850 million rights issue last month had few takers after the stock price slipped below the offer price, and founders bailed out the issue. The funds were to be used to pay off bridge loans taken for the $2.3 billion deal to buy Jaguar and Land Rover earlier this year.
Aluminium maker Hindalco Industries, too, could not get investors to cover all its $1.1 billion rights offering, and the founders and underwriters had to pick up the balance. Hindalco will use the money to pay part of a $3 billion bridge loan taken last year to buy Canada's Novelis.
Unlike in China, India's top corporates are from the private sector, with only state-run explorer Oil and Natural Gas Corp having the resources and government backing to sew up the country's energy needs.
ONGC, which has about $15.5 billion in reserves, has agreed a $2.6 billion takeover of Imperial Energy, and is scouting for more such deals.
"Deals involving companies with strong balance sheets still look promising," said Ranjit Lakhanpal, managing director of investment banking for JP Morgan in India.
But since September, Indian and Asia stock markets have plunged nearly a third, severely limiting financing options.
The Reserve Bank of India has slashed interest rates and banks' reserve requirements and pumped extra cash into markets to keep credit flowing, but with pessimism growing over the global outlook, corporate ambitions are being scaled down.
"Companies understand the need to conserve cash is gaining momentum," Kotak's Raghunath said.
(Additional reporting by Michael Flaherty in HONG KONG; Editing by John Mair & Ian Geoghegan) Keywords: DEALTALK/INDIA M&A . Keywords: DEALTALK/INDIA M&A =2
(narayanan.somasundaram@thomsonreuters.com; 91 22 6636 9068; RM: narayanan.somasundaram.reuters.com@reuters.net)
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