Investment bankers see Greek crisis as window of opportunity

The European economic crisis could be an opportunity for Indian corporate houses. Leading investment bankers say assets, globally, are available at attractive valuations and the rise in domestic stock prices has added more strength to balance sheets of Indian companies.

According to investment advisors, the recent turmoil in Greece and Portugal will keep the interest rate regime benign in the euro region, leading to flow of liquidity towards emerging economies that have impressive growth rates. The fact that the rupee is also gaining strength against most leading currencies of the world makes overseas acquisitions more attractive, they say.

“I think outbound will be more than inbound, since (domestic) valuations are going up,” says Saurabh Agarwal, managing director and head of investment banking at Bank of America Merrill Lynch. “Overseas valuations are still very decent. If you have a currency (stock) where you can raise money at good valuations and you can go and buy assets which are cheaper, then why not?” says Agarwal.

Interestingly, the past few months have seen a few big-ticket outbound deals by Indian companies. Leading Indian telecom major Bharti has been involved in a deal valued at over $10 billion. State-owned NMDC acquired the Brazilian operations of Ferrous Resources for $2.5 billion.

“The stars are aligned for Indians to take advantage,” says Tarun Kataria, managing director & head (corporate, investment banking and markets), HSBC. “The turmoil is good for India Inc and it should take advantage of it. Valuations in Europe are coming down. Even from the currency standpoint, it makes sense as the dollar, the euro and the sterling are all going down. We have got financing, we have got stronger currency and we have got the managerial bandwidth.”

Currency plays an important role in determining the timing of an overseas acquisition. A small rise/fall in the exchange rate can alter the deal value by a few million dollars. The downgrade of Greece and Portugal has put a lot of pressure on the euro, currently trading close to its lowest level against the dollar in the past year. Reports suggest even the pound sterling is headed towards further lows. Meanwhile, the rupee has gained nearly five per cent in the current calendar year.

Sanjay Sakhuja, CEO of Ambit Corporate Finance, says a “lot of Indian corporates have raised capital to leverage their balance sheets and are sitting on cash” that can be deployed for acquisitions.

“All the enabling factors for Indian corporates to look overseas are in place. At the same time, the global market seems to be in a state of flux and so global assets are selectively available at attractive prices.”

Meanwhile, according to Venture Intelligence, the first three months of 2010 saw 134 merger and acquisition (M&As) deals involving Indian companies, 76 per cent more than the corresponding period last year.

More important, over 50 per cent of the deals were outbound acquisitions, compared to only 25 per cent in the same period last year.