Path paved for big buyouts abroad

The abolition of the $100 million ceiling on overseas investment removes what analysts said was the "psychological barrier" holding back Indian companies from executing big-ticket acquisitions abroad.

Companies can now invest up to 100 per cent of their net worth with no upper ceiling, making it possible for them to look at larger-sized acquisition opportunities.

Investment banking sources said corporates have the muscle on their local balance sheets to look for big acquisitions abroad, either to stamp their presence in those markets or simply to widen their products' reach.

The net worth of top corporates hover well in excess of Rs 20,000 crore as in the case of Reliance Industries and ONGC.

"This will facilitate mega deals in the pharmaceuticals, information technology and telecom sectors, as corporates can now go through the automatic route and need not take permission," said PricewaterhouseCoopers executive director Vivek Mehra.

"It could be viewed as a signal to the Indian corporates to change the mindset and think bigger than ever before. It is a move in the right direction, and highlights the government's confidence in Indian corporates as well as the country's foreign exchange reserves position," said Ajay Piramal, chairman & managing director of Nicholas Piramal India.

The liberalisation is clearly prompted by the country's burgeoning foreign exchange reserves well in excess of over $100 billion.

In fact, over the last one year, Indian companies have been seriously scouting for business opportunities abroad.

A headline deal in point is VSNL's acquisition of Gemplex aimed at acquiring the latter's internet protocol technology and solutions.

The easing of the norms will also help Reliance Infocomm clinch the $221 million proposed acquisition of Flag Telecom.

The buyout will bolster the company's fibre optic capacity. The deal will also be the largest by an Indian company when fructified.

The largest concluded deal till now has been Ranbaxy's euro 70 million ($84 million) buyout of the France-based RPG Aventis.

Many corporates see this move as a step towards capital account convertibility following the rising reserves.

Further, with the IT and pharma companies setting their sights at growth opportunities abroad, the latest move will facilitate their plans, said a senior official from a pharma outfit.

"Though many foreign companies have been venturing into India, a number of our Indian outfits are on a shopping spree overseas," he added.

According to industry figures, since January last year, Indian companies have announced about 40 global acquisitions, amounting to over $600 million.