Indian FDI Transactions Give New Meaning to Cross Border Deals
A pair of transactions between U.S. and India was announced during the first week of March. Essar Group, an Indian conglomerate, with $15 billion of revenue and one of India’s biggest steel producers, announced its acquisition of Trinity Coal Corporation from its parent, Denham Capital Management LP. Founded in 2005, Trinity Coal is based in Scott Depot, West Virginia and is one of the U.S.’s ten largest coal producers. Trinity operates mines in Kentucky and West Virginia. Trinity’s annual coal output is about 7 million tons, and it has reserves of 200 million tons. The reported price for Trinity is between $550 million and $600 million. The basis for the deal was Trinity’s substantial metallurgical coal reserves and its skilled personnel.
Essar has interests in telecommunications companies, steel, power, oil refining and outsourcing. Essar is controlled by Shashi and Ravi Ruia, who are brothers. One of India’s biggest steel producers, it has manufacturing capacity of 14 million tons. According to VCCircle, the purpose of the deal is to secure raw materials for Essar’s North American steel plants and iron ore operations.
Last November Essar acquired a controlling interest in Warid Telecom Uganda and Warid Telecom Uganda. Essar had earlier launched a telecom service in Uganda. Essar looks to be opportunistic around the world. The Trinity transaction fits this opportunistic bent.
In a transaction going the other way, U.S.-based private equity fund New Silk Route Partners, agreed to invest $50 million for approximately 30% of Nectar Life Sciences Ltd. of Chandigarh, India. Nectar Life Sciences is an integrated generic pharmaceutical manufacturer with technology that is used to inject its products into patients. Its shares are traded on the Bombay Stock Exchange and the National Stock Exchange of India. Nectar will use the investment to fund its growth. New Silk Route is based in New York and is a growth capital firm dedicated to private equity investments in India, South Asia, Middle East and other rapidly growing economies of Asia. As recently as last November, the fund said it was looking for investments in the $100 million range. Nectar must have been quite attractive to win over New Silk Route. According to RTT News, New Silk Route is now the largest overseas investor in Nectar.
This pair of transactions is emblematic for the contrast apparent in the current world of cross-border transactions. In one direction, a large multinational is vertically integrating by acquiring available resources in a developed market, such as the U.S., aggregating its components close to their ultimate markets, rather than shipping the components in from low-cost sites overseas. At the same time, in stark contrast, U.S. investors are funding potential high growth investment opportunities in emerging markets.
