4. INDIA; THE FOREIGN EXCHANGE

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THE FOREIGN EXCHANGE

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THE FOREIGN ACQUISITIONS

        In July 2004 some leaders – particularly the leaders of the BJP- demanded the industrial houses to utilize the foreign exchange for starting projects abroad.

        Some newspapers now said that there was no use in accumulating the foreign exchange.

      Thus the industrial houses decided to remove the foreign exchange with the help of the opposition parties and the Prime Minister of India.

     Within a few days, an Indian private company, Tata Sons,  signed an agreement to buy a steel company in Singapore for $486.4 (Re.1313 crore). It said that the acquisition was for its globalization.

On the same day, another Indian private company got the ownership and the management control of a German polyester company. The amount paid was not given.

The above acquisitions were just a beginning of a series of acquisitions.

            Thus, a private company on 1 November 2004, informed its decision to buy  one of the world’s most advanced and extensive submarine cable system, for $130 million (600 crore) subject to the approval of the Government of the USA, India and other countries. The statement said that the acquisition was funded through internal accruals and that the company had formed a special purpose vehicle for that purpose.

     The New Indian Express” on the same day reported that Tata and Reliance were vying with each other to buy the US based Tyco Telecom network which had the largest optic telecom network in the world. According to the paper, Reliance had already acquired Flag Telecom in the US.

      The paper reported that the Tata Sons was flush with funds from the TCS issue and that it was planning to invest 20,000 crore in their telecom business.

        Further, the paper said that Tata was planning to buy Tyco Global Network for $200 million. The paper disclosed that Tata had a subscriber base 5.42 lakh whereas Reliance had 81 lakh. The reports indicated that Tata, apparently, mobilized resources through the TCS public issue to invest abroad.

        The Business Line, on 14 February 2005, reported that the Tata group won the bid to acquire 26 percent stake in South Africa’s Second Network Operator (SNO).

      On 17 February 2005, the same paper reported that that Tata had bought Singapore’s Natsteel Ltd for $ 364.8 million.

             Mr. Ratan Tata said at Chennai that time had come for Indian companies to think differently. He added that cautious movements and incremental improvements had become things of the past. The Hindu reported this on 19 February 2005.

        The Associated Chambers of Commerce and Industry of India (Assocham), on 3 March 2005, wanted the Government to extend credit to other countries to encourage growth in exports and to increase employment. It also wanted the Government to retire high cost external debt.

       However, the Assocham wanted the Government to invest the foreign exchange in highly rated corporate bonds overseas. This was a ploy to encourage the Government to enter arbitrage trading. This is the reason why only an alert President could save the money in the banks and the foreign exchange.

        The New Indian Express, on 9 June 2005, reported that the RBI Governor has, granted permission to the corporate houses to convert bank funds into foreign exchange to buy assets abroad.

       Taj Hotels Resorts and Palaces division of Indian Hotels Company (IHCL) of Tata, on 30 June 2004 took over The Pierre- a 41-story hotel in New York through a contract.

The VSNL, a Public Sector Undertaking (PSU) acquired by Tata, bought Tyco Global Network (TGN), an undersea network, at a cost of $130 million. The management responsibility of TGN will be assigned to the VSNL International, which has offices in Virginia, New Jersey, London, Paris, Mandrid, Amsterdam, Frankfurt, Singapore and Tokyo.

     The Oil and Natural Gas Corporation (ONGC) having an asset of Re.60,900 crore and the world’s largest steel maker Mittal Group having an asset of Re. 96,800 crore on 23 July 2005 signed an agreement to form two joint venture companies for exploration of oil and gas assets related business abroad. The ONGC Videsh Ltd (OVL)- the overseas arm of the ONGC- and Mittal investment called Sarl, signed the Memorandum of Understanding (MoU). As per the agreement, two new ventures called ONGC-Mittal Energy Ltd and ONGC Energy Service were suddenly formed. 98 per cent equity of these companies will be held in proportion of 51 per cent with the OVL and 49 percent with Mittal investment. Financial institutions will hold the remaining two percent equities. Thus the ONGC would have 49.98 percent and Mittal would have 48.02 percent shares. The objective of the former company was acquiring other oil and gas companies and that of the latter was trading in oil and gas besides shipping. Mr. Mittal said that it was his small help to his motherland.

 Later, a ploy was detected in the agreement as the financial institutions could join with Mittal.

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