By Shefali Anand and Nisha Gopalan
Companies serving Indian consumers are attracting billions of
dollars in foreign investment even as deals in other parts of the
country's economy have nearly stalled.
Global consumer-goods giant Unilever PLC said on Tuesday that it
would pay $5.4 billion for another 22.5% of its Indian unit,
Hindustan Unilever Ltd., raising its total stake to 75%. That would
be the largest cross-border acquisition in Asia this year.
A day earlier, a senior Indian official told The Wall Street
Journal that Swedish clothing retailer Hennes & Mauritz AB, or
H&M, sought the government's approval to open 50 stores in
India. An H&M spokesperson confirmed the application.
And last week, Abu Dhabi-based airline Etihad Airways agreed to
buy 24% of Jet Airways (India) Ltd. for $380 million, partly
because more Indians are now traveling to the Middle East.
The deals show that foreign companies are willing to invest in
consumer-oriented Indian companies despite regulatory headaches and
a slowing economy. India's economy is expected to grow by 6.4% in
the financial year that started April 1, down from 8% to 9% growth
just a few years ago. Delays in government approvals, uncertainty
over taxes and political challenges have soured many investors on
such sectors as power and roads.
But foreign companies are more upbeat on India's consumers, as
well as health care and education, because of the potential growth,
analysts say.
"Based on the conversations we're having and hearing...I suspect
there will be plenty of foreign multinationals trying to buy assets
in India that play into the domestic growth story, or, like
Unilever, are intent on refocusing out of core Europe," said Viral
Gathani, head of energy, natural resources and infrastructure
investment banking at CIMB Securities Ltd. in Hong Kong.
If completed, the Unilever deal alone would increase the value
of mergers and acquisitions in India so far this year by more than
half. This year, the country had just $7.9 billion of M&A deals
through April 25, a decline of around two-thirds from the same
period last year, according to Dealogic, a data provider.
Some other recent big deals also targeted consumers. In January,
GlaxoSmithKline PLC completed a deal reached late last year to
invest around $900 million to raise its stake in its India-listed
subsidiary, GlaxoSmithKline Consumer Healthcare Ltd.
In November, U.K. spirits giant Diageo PLC agreed to pay up to
$2 billion to buy a majority stake in India's United Spirits Ltd.,
the world's largest liquor company by sales volume. It will likely
end up paying only around $1 billion for a minority stake after an
offer to buy stock on the open market failed last month, according
to a person familiar with the transaction. Diageo has said it is
happy with a minority stake.
A $1.94 billion plan by IKEA, the Swedish furniture company, to
open 25 stores in India is close to winning government approval. A
senior official said Tuesday the proposal was likely to get the
go-ahead on Wednesday, but a key meeting was postponed.
The Indian government has tried to attract foreign investment by
loosening its grip on the retail sector. In 2011, it permitted 100%
foreign ownership in single-brand retail outlets, through which a
company sells only its own brand of goods. Previously, the limit
was 51%.
In September, it allowed big-box, multi-brand retailers such as
Wal-Mart Stores Inc. to own up to 51% of an Indian company.
Despite those shifts, India's political and bureaucratic
landscape remains forbidding and is almost certain to prevent a
flood of investment in the near term.
Though several foreign retailers, including Wal-Mart, have
expressed interest in opening stores in India, for example, they
are still trying to find their way seven months after the September
decision.
Still, some experts remain optimistic that over time, many of
these would-be investors will succeed and others will follow. The
current slowdown in deal making is "not the end of the India growth
story," says Lalit Kumar, a partner specializing in mergers and
acquisitions at Indian law firm J. Sagar Associates.
--Rajesh Roy contributed to this article
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