Hunger for resources have reached manic proportions in India. The country, chalking GDP rates that even the most optimistic of the economists could not have imagined a decade back, is firing on all cylinders. And in the wake of this unprecedented growth, the need for overseas acquisitions, of asset plays abroad is coming into sharper focus by the day. On a different plane, environmental concerns too are seeking to put a cap on mining activities, forcing many to look outside the nation’s boundaries.
I remember my first exposure to overseas resource acquisition in the early 1990’s – inward looking India could not even think of such bold steps and everyone, from the bankers to the lawyers drafting the papers were skeptical in capital letters. The funds were difficult to access and we had a Herculean task at hand, of just explaining the economics of the deal to men with closed mind sets.
Cut to the present. I was attending a seminar on Mergers and Acquisitions and hold your breath; the speaker was highlighting “Glamour” as one of the reasons why Indian companies are going in for overseas asset plays!
Today, as I look at some of the acquisitions that have taken place or are in the pipeline, I am horrified. Horrified because, the same set of globetrotting, blackberry wielding p-y-t’s who were managing stupendous amount of money in funds, is today playing the acquisition “game”.Youngsters, hardly out of their teens, with stamps from the world’s premier institutions propelled by the glamour of “doing the deal”. Youngsters, who have never seen a coal mine from the insides, mavericks who, while impeccable with the figures, have none the less, no domain knowledge of the dynamics of the industry.
They go by shelling out the price of reserve for resource and have in their collective wisdom jacked up prices to such an extent that Millions have been replaced by Billions. The prices have gone through the pit head and forgive me for sounding like an alarmist; I foresee a day where the same fate that befell on the purveyors of global high finance is going to unfold on the acquirers.
One cannot buy a mine off the shelf. They do not come with the tags and the price lines printed either. And mind you, the soot bedecked mines that bring out the jewels from deep within the nature’s womb are anything but glamorous. The world’s resources are being depleted at an alarming rate and supply security has already become the critical factor in most industries. In the context, acquisition of resource blocks, wherever they may be, is becoming a matter of grave concern by the day. But does it mean that we shall put all caution to the air and follow a few buccaneers who are out to make hay? Does it mean that Indian Industry, traditionally known for their cautious ways, blindly follow a few men, who according to their self styled agenda are chasing the glamour of “doing the deal”
They have done their “deals” in the debt markets peddling securities that were everything but secure. They have played their little games with the scrips. Now they have taken on a newer avatar – that of resource mobilisers. Beware. The streets will soon be littered with bodies – not of the pipers who wield the magic flute, but of the rats that scurry to get rich quick!
(Sumit Khetan is the CFO of the Concast Group and is an expert in overseas acquisitions and global financing. The piece was originally published in the October 2011 issue of the Core Sector Communique)