India Dealmaking Could Slump on Central Bank Rule to stem the flight of capital from the country.

August 26, 2013, 1:22 PM ET

India Dealmaking Could Slump on Central Bank Rule

Vipal Monga

Senior Editor

Indian companies have been snapping up foreign targets of late, but that activity could slow because of new regulations being imposed on overseas deals by the Reserve Bank of India. According to a report by the Press Trust of India, India’s central bank will be reviewing a pending $2.4 billion dealbetween Indian’s Apollo Tyres andCooper Tire & Rubber Co. as part of new controls meant to stem the flight of capital from the country.That deal was announced at the end of June. But now it’s uncertain whether the transaction will be approved, which caused Cooper Tire & Rubber’s stock to fall 2.6% on Monday.

India now requires any Indian company acquiring a larger overseas target to get approval from the Reserve Bank of India. Prior to the change in rules, Indian companies were able to acquire companies that were four times as large without seeking approval.

Indian companies have become eager acquirers of energy, transportation and steel companies over the last several years, flexing their strength as global players.

But the central bank’s policy could slow the pace of deal making from India.  Companies there have announced acquisitions worth $8.6 billion worth of companies outside of the country so far this year, almost equaling the $10.4 billion for all last year and more than double the $3.5 billion they had acquired by this point last year, according to Dealogic.

However, a precipitous decline in the value of the Indian rupee currency has caused the central bank to try to stem capital flight from the country and protect the exchange rate. The rupee is down 17.5% against the U.S. dollar this year.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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