Deal or no deal?

The financial crisis has left dozens of India-related business deals in limbo. Alfred Romann assesses the state of play and asks whether there’s light at the end of the tunnel

The December/January issue of India Business Law Journal revealed the results of the 2008 Deals of the Year awards. While many landmark transactions were brought to fruition during the year, many others fell by the wayside, derailed by financial adversity.

Delhi-based law firm Titus & Co, for example, reports that a listing on London’s Alternative Investment Market by a popular Indian newspaper was cancelled due to sharp falls in share prices. International law firm Dorsey & Whitney tells of another deal – one that had been expected to raise billions of dollars – that was called off for similar reasons. The stock market drop also ended the Luxembourg Stock Exchange listing plans of a company represented by KR Chawla & Co, while a fall in valuations at SRM Infrastructure cut short its search for private equity funding.

Noida-based law firm Singhania & Partners saw the delay and eventual cancellation of a private equity deal involving a web company seeking to acquire an American company. A French medical products supplier, meanwhile, cancelled its plans to set up shop in India.

The economic turbulence of 2008 meant the year was characterized more by deals that did not happen than those that did.

A substantial slide in share prices, company valuations, the rupee and the availability of credit created a new set of economic realities for Indian and international companies that, just months earlier, had been on an expansion path. “When parent companies of the investors (based mainly in the US and in Europe) found themselves in a severe credit crunch, the only option left was to withdraw their money from India’s stock markets to meet liabilities in their respective countries,” say lawyers at Titus & Co. This created a downward spiral that saw valuations at some of India’s biggest corporate houses plummet, while smaller companies that may have been more leveraged became engrossed in a struggle for survival.

IPO backlog

Throughout 2007, India was on an international shopping spree. Its corporate houses were flush with funds and able to pick from a parade of opportunities to buy companies around the world. Deals were done on everything from cars and steel to telecoms and Scotch whisky. Money was flowing out of India to the rest of the world and reshaping the financial landscape. The domestic capital markets soared, with record-breaking IPOs becoming a common occurrence.

Then everything changed. “In a relatively brief span of time, euphoria was replaced by hysteria,” says Rajiv Luthra, managing partner of Luthra & Luthra. “So there we have it – the flight of foreign funds and loss of investor confidence equals a market with little appetite for IPOs.”