A view of India – deals, opportunities and countervailing forces in the current market

Friday, January 02, 2009 | Posted by: Grant Thornton
Categories: | Tags: India, global, India Watch, infrastructure, deals, Jonathan Morris, Berwin Leighton Paisner LLP, Mark Lewis

Whilst it will hardly come as a surprise that there is little to no current activity for Indian clients in the equity capital markets, we do see Indian infrastructure groups looking ahead to possible IPOs in London later this year or in early 2010. Time will tell as to whether the markets will be open by then.

On a more positive note, there is some active interest by Indian infrastructure and commodities groups in issuing GDRs in London.
And on a more positive note still, we are seeing strong interest by Indian buyers for UK targets in a number of sectors, especially as they perceive that valuations are favourable (with perhaps some way to go). In the information technology (IT) and IT-enabled services (ITeS) sectors, it is clear that Indian companies are beginning to follow a more artful approach in creating carve-out opportunities from UK and European corporate operations. Typically, an Indian IT/ITeS provider will identify a subsidiary or business division providing IT or back office services to an onshore group, and will acquire the subsidiary or division by share or asset acquisition, respectively, in return for a medium to long-term outsourcing contract. The key difference between the recently announced sale by Aviva of Aviva Global Services to Indian and NYSE listed WNS for £110 million and these transactions is that the latter are of onshore captives.

While the world awaits the outcome of the Indian government, SEBI and police investigations into the Satyam saga, it is clear that this has temporarily affected market sentiment towards capital markets and M&A transactions with Indian companies. The main issue here is the credibility of corporate governance, especially given that a majority of top Indian groups (whether listed in India or abroad) are family-owned and managed. All countries are likely to have their “Enron moments” but, in India’s case, it would be most unfortunate if investors were to tar all of corporate India with the same brush. We remain optimistic that confidence in Indian corporate governance will be restored. The immediate and decisive action of the Indian authorities can only assist this process.

On a final note concerning cultural issues, we perceive that one of the main challenges for Indian companies acquiring UK targets is adapting the Indian management and operational outlook and approaches to reflect the UK corporate environment.

Jonathan Morris
Partner, India Group
Berwin Leighton Paisner LLP

 
Mark Lewis
Partner, India Group
Berwin Leighton Paisner LLP