Mitra: Focused

New Delhi, Aug. 28: The Federation of Indian Chambers of Commerce and Industry (Ficci) has proposed a body to provide political risk cover to companies making overseas acquisitions.

“We plan to write to the Prime Minister and urge the government to form a body on the lines of Opic (Overseas Private Investment Corporation) which exists in the US, to ensure political risk cover for companies,” said Amit Mitra, secretary-general of Ficci.

“During political instability or change in government or laws of a country, such a back-up measure will help companies that want to expand,” he added.

The chamber has also proposed a fund to acquire high-tech companies.

“If the firm bidding for an overseas company cannot raise the stipulated amount, this fund can take care of it. Later, when the bid becomes fruitful, the money can be paid back,” said Mitra, who will present some of these suggestions to Prime Minister Manmohan Singh on behalf of corporate India.

A Ficci study said India Inc’s cross-border acquisitions have risen from 46 in 2004 to a 130 in 2005.

According to the study, eight factors are driving cross-border acquisitions.

These include global leadership in a specific product category, greater and easier market access, access to technology and knowledge, access to international brand names and growth in size and scale of operations. Moving up the value chain, acquiring natural resources and strengthening capabilities in niche areas are the other key drivers.

The study shows that the IT, software and BPO sector are leading in terms of the number of cross-border acquisitions.

In the 306 overseas acquisitions that took place between January 2000 and July 2006, Indian companies have invested $10 billion.

The infotech sector has inked 90 deals. A number of acquisitions were also seen in healthcare and pharmaceuticals, automotive and metals and mining.

The miscellaneous segment, which accounted for just a handful of acquisitions during the 2000-2004 period, saw a quantum jump in deals during 2005 to 28.

This segment included companies from energy, infrastructure, telecom, banking, hospitality and textiles.

The US remains the dominant global acquisition landscape for Indian enterprises. They acquired equity stakes in 100 companies in the US over the period, accounting for 32 per cent of their total overseas acquisitions.

Europe and the UK have emerged as the second and third favourite destinations, respectively, for overseas investments.