Thumbs up to doubling of cap for overseas acquisitions

ANNUAL POLICY 2005-06/ FOREX MARKET

India Inc has welcomed the Reserve Bank of India's annual policy announcement for 2005-06 that doubles the yearly automatic cap in overseas acquisition and dubbed it a step towards the globalisation of the domestic industry.

The policy today has proposed to raise the ceiling of overseas investment by Indian entities in overseas joint ventures and wholly owned subsidiaries from 100 per cent to 200 per cent of their net worth under the automatic route in a year.

Beyond the proposed 200 per cent limit, a company has to get the approval from the Centre before an acquisition.

For example, the pharmaceutical major Wockhardt has a net worth of $150 million. So, it is now allowed investment up to $300 million for setting up foreign joint ventures or subsidiaries in a year.

But Wockhardt will need government approval if it wants to surpass the limit, explains Wockhardt chairman Habil Khorakiwala.

Khorakiwala, who is also the president of Indian Pharmaceuticals Alliance, an industry body, said the announcement will encourage the Indian companies to go global. "It also shows that the government has got the confidence that the domestic industry can now go global."

According to Khorakiwala, the pharmaceutical industry, which has acquired 12 foreign companies in the past couple of years, will be among the beneficiaries of the proposal. Telecom, engineering and IT are also poised to utilise the advantage being thrown by the proposal.

Amit Kalyani, executive director of Bharat Forge, said the proposal is "very progressive" as it recognises the strength of the Indian companies to go global.

"We have reached the level where we now need to go global to create even bigger size." Bharat Forge, the world's second largest forge company, acquired two foreign firms last year.

Sanjay S Lalbhai, managing director, Arvind Mills found the announcement "very encouraging" to a large number of companies which are fundamentally strong enough to take up the global challenges.

"However, it does not mean that all the companies will be able to get benefit from the announcement," he cautioned.

The textile industry, in which Arvind Mills is a major player, will not be able to utilise the benefit accruing of this policy right now, he said.

"I hope that in near future, our textiles companies will emerge as strong players to acquire foreign assets, particularly brands," he said.

Since January 2003, the Indian Inc has invested over $600 million for acquisition of foreign companies.

The list of noteable overseas acquisitions in the past one year includes Flag Telecom by Reliance Industries, Export Information Services of Australia by Infosys, Daewoo Commercial Vehicles by Tata Motors, the forging business of CDP, Germany by Bharat Forge, British cosmetics firm- Redrock by Dabur, Hindalco acquired copper mines in Australia, Ranbaxy took over Aventis' generic unit in France, Sundaram Fasteners acquired precision forging unit of Dana Spicer and Amtek Auto acquired Smith Jones Inc.