Foreign investment inflow through acquisition of shares in existing ventures _ either through the takeover route or upping the overseas investors stake in their joint ventures in India _ has netted a whopping $1 billion during January-September 1998. This contrasts with a mere $1.91 billion foreign investment inflow for greenfield projects during the same period.
Significantly, the foreign investment inflow through the share acquisition route in existing Indian ventures in the last three years (1995-97) totalled only a $1.3 billion, according to figures compiled by the industry ministry.
The comparatively high foreign investment for acquisition of shares in existing Indian ventures this year indicates that the overseas investors have stepped up their consolidation process in India, either by buying out the local partners' stake in their joint ventures or making entries into Indian companies by picking up equity stakes.
Hutchinson Whampoa buyout of Max group's stake in the Max-Hutchinson cellular venture, Honda buying out another five per cent stake in its passenger car venture from its local partner Sidharth Sriram, virtually exiting Siel from the JV and Alcan upping its stake in its Indian subsidiary Indal through an open market war were some of the major instances where the overseas investors consolidated their stakes in their existing Indian ventures.
Some of the buyout deals such as Swisscom picking up additional three per cent stake from the Ruias in Sterling Cellular and BPL selling off four per cent to a foreign investor are not included in the $1 billion figure, as these proposals are yet to be approved by the Cabinet Committee on Foreign Investments (CCFI).
If these investments are included, the inflow through the share acquisition route will be about 60 per cent of the foreign investment inflow for greenfield projects.
The industry ministry figures on the actual inflow of foreign investments do not include the investments made for share acquisitions.
According to industry ministry officials, there has been a sudden spurt in the trend of foreign partners pushing out their local partners from the joint ventures this year, though about 95 per cent of them go unnoticed. Only a handful of such cases, which figure big names, come to limelight.
Consultancy firms and merchant bankers say they expect a significant rise in foreign investments through the share acquisition route in the near future because of the drastic fall in the market capitalisation of Indian companies including many of the bluechip ones due to the prevailing stock market conditions.
Some of the consultancy firms including KPMG have admitted that they are currently `working on a number of acquisition deals for their international clients'. "Many of the good Indian companies are available for cheap buys now and overseas investors are seriously looking at these opportunities," a senior KPMG official said.
