Open offers by multinationals due to low valuations: DSPML official

Anju Ghangurde

Mumbai, July 17: Low valuations are the trigger for the spate of open offers being made largely by multinationals, to up their stake or even delist their Indian entities, according to DSP Merrill Lynch executive vice-president, Rajeev Gupta.

“Low valuations are the trigger. But the single-most factor driving these offers is that Indian capital markets are not really strategic for these companies. They don’t think that they have to raise capital of any meaningful amount. So if they don’t think its strategic, it makes sense for them to exit. For large holders of equity, as the market becomes illiquid, then open offers become the point of liquidity,” he told The Financial Express in an exclusive interview.

Mr Gupta added that the mergers and acquisitions (M&A) market is impacted more by business confidence, foreign direct investment (FDI) flows etc rather than the stock market. “The relevance of the stock market is greatly reduced, as most M&A deals in India are cash deals. There is a bit of disconnection between the stock market and the M&A market and except for the telecom sector (which is an unlisted sector) where we are seeing stock for stock transactions, “ he said.

He added that there is “a definite strategy” driving M&A in corporate groups and consolidation is not restricted to any particular sector. “It is really not limited to any industry. People are deciding on what businesses to stay in what businesses not to stay in. Choices are being made on portfolios. But at the heart of it all is strategy and its not a sectoral issue”.

On the issue of factoring in intangibles into M&A deals, he said, “If you were to take a cash-flows based valuation, the entire issue of tangibles versus intangibles loses relevance”.

Mr Gupta stressed that at the end of the day it is cash flows that matter. “People are looking at cash flows under the current management and under a new management. The relevance of intangibles is three-fold: accounting, tax-treatment and finding debt financing. More and more lenders are willing to accept intangibles as assets for lending purposes,” he pointed out.

Mr Gupta also brushed aside the delays in the government’s disinvestment programme.

“If you look at the privatisation process anywhere in the world, it has its initial hiccups. There are bound to be some hitches along the way. People do expect a little bit of a rough ride, but we can’t discard it as mere pipe dream, “ he said.