Are you seeing inbound M&A interest in India?
We are seeing renewed interest by overseas investors, especially from Europe and Japan. We recently managed the sale of Alliance tires to Yokohama Rubber in one of the largest cross-border M&A deals this year. We are seeing strategic interest but feel that they will be opportunistic, depending on the kind of assets that are up for sale and how they fit into the scheme of things for the acquirer. Sectors such as services, healthcare and renewable energy are likely to see the highest level of interest. India is a bright spot globally in terms of growth and we are seeing a significant amount of interest in India on the back of structural changes such as GST and the bankruptcy code, which gives investors the much needed comfort.
Are you beginning to see a pick-up in private sector capex?
Currently, capacity utilisation of industry is at a five year low. There is a lot of spare capacity. And till we see utilisation picking up, we are not going to see significant private investment coming back. I believe that we are still 12-18 months away from a broad-based recovery as far as base capex is concerned. In the interim, I think public spending will be the key driver of demand and we have already seen government spending pick up in several sectors such as power, railways and infrastructure. Also, we are structurally in a lower interest rate regime, which has been aided by inflation trending downwards. Add to that the benefit of a good monsoon which will spur farm and rural consumption. Also, our CAD is well below 1% of GDP – we’ve had the benefit of a sharp decline in crude oil prices in the last few quarters which is hugely beneficial to a country like ours. If you put all of this together and add the movement we’re seeing on the policy front, you will see demand beginning to pick up in some time from now.
Of late, banks have been wary of lending for new investment? Do you see that changing?
For good, viable projects there is always money available. Also, there is abundant global liquidity available. But again, good projects are still few and far between. A large part of the current borrowing is going towards refinancing existing debt. Significantly, there has been credit compression between AAA and AA rated bonds and investor confidence is making a comeback. For example, we recently led the R4,000 crore bond offering for Nirma’s acquisition of the Lafarge India cement assets. With a rating of AA (-ve outlook) they were able to raise the money for up to five years with an average yield of 8.68% which is phenomenal when you compare them to rates a year back. So there is a strong appetite amongst investors for good quality paper.
How do you view the distressed sectors such as thermal power? Many projects are stuck due to lack of last mile funding.
Traditional thermal power will take time to recover. There has been excess leverage in the system. However, we feel that consolidation is the way forward as far as traditional power is concerned. We have already seen JSW and Adani acquiring a number of assets in this space. We expect more deals to happen going forward. Broadly speaking, the health of corporate India is not really as bad as its being made out to be. There are still projects getting financed on the strength of companies’ balance sheets. Also, if you see the overall ratings downgrade of companies this year relative to last year, it gives an encouraging picture compared to the year before.