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For the first time Indian companies have shot ahead of their Chinese counterparts in acquiring overseas mineral assets.
From just $128-million worth of overseas buys in 2009, Indian companies went on a mega acquisition spree of $4.64 billion in 2010, while Chinese outbound investments declined by more than half to $4.45 billion.
An Ernst and Young study on mergers and acquisitions in the mining and metals sector shows how aggressive Indian companies have turned in the span of a year, securing their resource base, especially coal and iron ore.
“India, for the first time has exceeded China, particularly in outbound investments. It is quite striking because Chinese firms were busy with domestic consolidation and were investing less overseas,” said Mr Michael D. Lynch-Bell, Partner in-Charge, Transaction Advisory Services for Global Mining and Metals at Ernst & Young LLP.
“Indian companies, witnessing strong growth, see on the horizon a shortage in raw materials, particularly coal and iron ore,” Mr Lynch-Bell said.
Further, they feel that project approvals can be hard to secure due to strict environmental laws. Also, aspiring Indian companies want to sustain and grow their earnings through acquisitions, he added.
India shot up the ranks of acquiring countries, to 7{+t}{+h} place in 2010 from 14{+t}{+h} place in 2009, accounting for 5 per cent of the global deal value. About 20 deals were done by Indian firms, including 12 overseas, with a total value of $6.6 billion.
Coal accounted for more than two-thirds of the Indian mineral overseas M&A spend and half of it was Down Under.
Interestingly, China, which topped the global rankings in 2009, slipped to fourth place in total deal value in 2010.
economic growth
The drop was largely due to stronger economic growth in other countries as opposed to a reduced appetite for M&A in China, the E&Y study said. Canada, with over a fifth of global deal value, topped the chart. The global deal value in mining and metals almost doubled to $113 billion in 2010 as against $60 billion in 2009.
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