Foreign Capital Floods
Indian Telecom Industry
Japanese investments shifting from China to India
A flood of foreign investments are flowing into the Indian mobile communication industry. The Financial Times reported that Infocomm, India's large-sized mobile telecom operator, decided to attract $3 billion worth of foreign capital on July 20, while Hutchison Whampoa Limited Group in Hong Kong acquired India's BPL Mobile telecommunications division for $1 billion on the same day.
Infocomm, a subsidiary of Reliance Industries, one of India's largest business groups, has been the subject of investments prior to its listing scheduled for this year.
Reliance Chairman A. Ambani said foreign financial companies, including Carlyle Group, Deutsche Bank, Citibank, Blackstone and Temasek Holdings, would invest into Infocomm. Each foreign company is expected to acquire a 5 percent to 10 percent stake in Infocomm, India's second largest mobile telecommunication service provider. Experts say that given the potential of the Indian telecommunication market, one of the fastest growing markets worldwide, the value of the company would stand at an estimated value of more than $5 billion if it were listed on the local stock exchange.
Analysts said A. Ambani has been embroiled in a management dispute with his younger brother, M. Ambai, but his attraction of foreign capital is likely to boost his management power base. Hutchison Whampoa Group purchased BPL Mobile? wireless division for $1 billion through its joint venture firm in India. According to the agreement, the terms of the acquisition included the write-off of $500 million in debts and provisions amounting to $500 million in cash.
The deal allowed the joint venture of Hutchison Whampoa Limited to be listed in the top five telecom operators with a telecommunication network of 26 Indian states. Its subscribes will likely surge to 10 million, placing third following Air-Tel (13 million) and Infomm (10 million ) It plans to put more energy into integrating its marketing network with that of BPL Mobile in a bid to raise its corporate value prior to its listing.
Besides, Indian telecom provider, Air Cell Cellular succeeded in luring $200 million from a U.S. hedge fund. A flood of foreign investments is attributable to the fact that India is emerging as one of the most attractive mobile telecommunication markets.
Analysts said the growth potential of India would surpass China's in consideration of such factors as a population of 1 billion and a lower rate of utilizing handsets. In reality, Gartner issued a report that the number of cellular phones being sold on the Indian market would surpass that on the Chinese market by 2007.
Japanese firms are turning to India for investments and an increasing number of Japanese companies are shifting their investments from China to India due to fears of the ?hina risk?stemming from mounting anti-Japanese sentiment.
Suzuki, a Japanese mini-car manufacturer, witnessed its share prices plunge 10 percent last May when it unveiled a mid-term management plan, calling for a massive investment project worth 1 trillion yen in India. Investors considered the plan "risky" rather than "potential." However, two months later, on July 7, things have changed dramatically
when Toyota announced a joint venture in India. Toyota? share prices spiraled upward shortly after the giant automaker disclosed a joint project with its subsidiary Daihatsu to produce 100,000 units yearly from 2007.
Suzuki takes up a 50 percent share in the small car market, which accounts for nearly 70 percent of the whole Indian car manufacturing industry, with Hyundai Motor trailing with a 10 percent share. But Toyota, placing fourth with a 5 percent stake, is hurrying up in entering the Indian market. Japanese automakers' rush to India is due to the potential of the Indian market. India has posted an annual economic growth rate of 7 percent to 8 percent, while passenger cars marketed last year soared 17 percent to 1.6 million, ranking fourth after Japan, China and Korea.
Japanese individuals' investments into Indian stocks are on a constant rise. Such investments into eight products managed by Japanese trust investment companies amounted to as much as more than 250 trillion yen. Japanese companies' rush to India is closely related to their departure from China. Fears of heightening the China risk have diverted investments from China to India. A case in point is Marubeni, which has opted for India as its petrochemical production center instead of China in the wake of the revaluation of yuan.
The China risk refers to the possible bust of China's bubble economy; rising anti-Japanese sentiment and warning against China's rapid rise. nw