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| 23 March 2010 |
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Edition :: 78 Vol
:: II |
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| A Publication of Consulate General of India, Johannesburg |
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| Futuristic M&A math
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| Source: The Financial Express |
Place : India |
| News
Date : 23 March 2010 |
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India: The credit markets? appetite to finance the $8.3-billion Bharti-Zain deal is a good indicator for Indian companies planning big-ticket deals. By every standard, the deal is one of the biggest by a domestic corporate in the global buyout league. So, there was a lot of interest in regard to how the deal will be financed by a global financial market not yet fully recovered from the impact of the credit squeeze. For instance, getting a five-year syndicated dollar loan is still very difficult. Yet, the financing of the deal has been sewn up by the Bharti management at a very fast clip. It is less than a month since the company made the announcement of its plan to buy out the African operations of Kuwait-based Zain telecom. The striking difference in the post-2008 world is that companies are not resorting to the extent of balance sheet leverage that existed before the Wall Street crisis. This is a point of departure from some of the marquee deals before the financial blowout of September 2008. For instance, in the acquisition of Corus by the Tata group, special purpose vehicles were floated at several offshore destinations to massively leverage the initial $1 billion put in by Tata Sons. There was nothing unusual about this as respectable investment bankers were ready to leverage the group balance sheet several times to reach the $12 billion needed for the deal. The international market has, however, moved away from those practices?at least for now. So, the Bharti group has instead used the strength of its cash reserves to arrange a straightforward loan and possibly a limited leverage. The total debt-to-EBIDTA ratio for the combined entity remains under 2.5, which is considered safe.
The other interesting aspect of the deal is the role played by the Indian rupee for the term facility offered by the banks. This shows how Indian companies will do their M&A math in the future. The Indian rupee is now a key global currency and companies feel confident about using it as part of the debt mix. Gone are the days when corporates would be wary of taking a rupee loan and convert it into dollars for fear of gradual depreciation of the local currency. Indian banks will, therefore, play a bigger role in such deals. It has been reported that SBI has offered $1 billion in Indian rupees to India?s market leader in the telecom sector to finance the associated transaction costs. As the number of deals involving Indian companies grows, the need for the Indian rupee and the ability of the domestic banking sector to finance such a demand will multiply.
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