Recent investment figures, however, reveal that there’s a substantial reverse flow happening with British corporations emerging as a very big source of Foreign Direct Investment (FDI) into India. This at a time when foreign investors are put off by flip-flopping regulatory environment.
Consider this : The THREE biggest inbound foreign investments this year came from London-anchored marquee corporations. “Unilever” spent $3.5 billion to increase stake in its Indian unit, “GlaxoSmith-Kline” ploughed in $1 billion for a similar effort, and “Vodafone” just announced a $1.7-billion offer to buy out its Indian partners.
In 2011, Vodafone had spent $5.5 billion to buy out the Ruias of Essar from their joint venture. In the same year, BP made a $9-billion minority investment in RIL’s Krishna-Godavari Basin gas field. And only last year, British giant Diageo acquired India’s largest liquor company United Spirits for $2 billion.
“UK companies have a fair understanding of the Indian regulatory, legal and political structures perhaps due to a long-shared history. This helps them understand opportunities better. The Vodafone investment, for instance, comes at a time of regulatory and macro uncertainties,” said Manisha Girothra, CEO & India head of Moelis, an independent global investment bank.
A Barclays compilation shows that the UK, along with Singapore (11% each), has been the origin of the second largest FDI inflow of $132 billion into India since 2009. Mauritius topped with 36%, but that was largely due to favourable tax treaties that saw capital from other nations, including the UK, being routed through the island.
Since 2009, Barclays added that the UK has had a 31% share of inbound Merger & Acquisition activity pegged at $75 billion—and just behind the US’s 34%. This excluded Vodafone’s announcement of last week’s, which could see both nations sharing the top slot as the largest buyers of Indian assets.
“To find corporate UK still leading the way on India’s inbound FDI league table is somewhat unexpected, particularly when you look at the trade data between the two countries, where the UK ranks far lower. But think again ; it’s not really that surprising, given the presence of so many large UK businesses with such a long history in India,” said Frank Hancock, MD,investment banking at Barclays.
London, which is fighting to remain the world’s finance and investment hub, has also been building bridges with the emerging world more aggressively in recent years. “With limited opportunities in the UK and the larger part of Europe, British firms are looking at markets like India. Investments from the UK are more strategic, unlike those from the US, which are a mix of both strategic and private equity,” said Aakash Choubey, partner, Khaitan & Co.
From Reckitt Benckiser to Marks & Spencer, UK consumer giants have acquired brands and struck JVs for aggressive growth in India. Diageo’s takeover of United Spirits was possibly one of the most complicated cross-border deals in the recent past, but done with a belief that India is potentially the largest whiskey market in the making.
Tesco could be the first global retailer to enter India after FDI norms in multi-brand stores were liberalized ; this at a time when it has quit or scaled back in the three biggest economies of US, Japan and China.
“The latest deals show that UK companies believe in the Indian growth, and have not been deterred from investing by short-term headwinds. The problem is that once you take out marquee names, there’s a much smaller second tier of mid-sized UK companies investing in India, unlike those from Germany and Japan,” Hancock added.