WSJ: India Joins China in Global Hunt for Commodities

February 25, 2010

4 minute read

This article is a guest contribution by TraderMark, of Fund My Mutual Fund Blog.

A few weeks ago we noted the world's largest coal producer, Coal India, was on the hunt for global assets to expand their reach. [Feb 12, 2010: WSJ - World's Largest Coal Producer Has $6 Billion in the Bank and is on the Prowl for Assets] It appears this is now part of a broader national strategy mimicking what China has been doing the past half decade+.

If you have any Malthusian bones in your body, [Mar 24, 2008: WSJ - New Limits to Growth Revive Malthusian Fears] [Jun 20, 2008: World Population to Hit 7 Billion by 2012] you have to wonder as certain countries waste all their national treasure on bailing out banks, financing the lifestyles of those who refuse to save for themselves, and funding pet projects of their politicians - while others are attempting to snatch up as many long lived assets across the globe, what the long term implications will be. This is more or less parallel to a company who lives for today - happy to kick the can down the road - rather than spends heavily on R&D to prosper for tomorrow. Of course any such national directives would be considered "socialistic" in certain countries, hence anathema to even consider as national policy. Oh well, much better to send countless paper monies out into the atmosphere to help prop up home prices and capital market values from going where they belong - a much sounder national directive.

Via WSJ:

India wants to join the club of global energy giants. Some of the country's largest private and state-run firms are in hot pursuit of oil and gas assets overseas as they seek to take advantage of depressed asset prices during the downturn and break free of burdensome regulations at home.
In the latest move, oil-to-textiles conglomerate Reliance Industries Ltd., run by billionaire Mukesh Ambani, raised its bid over the weekend for LyondellBasell Industries, a bankrupt petrochemical maker and oil refiner. The new bid values the Netherlands-based firm at $14.5 billion, according to a person familiar with the matter. A deal with Lyondell would significantly advance the ambitions of Reliance's Mr. Ambani to build a global energy conglomerate. It would create a behemoth with $80 billion in combined revenues and interests in oil-and-gas exploration, refining and petrochemicals used for food packaging to textiles. (Reliance is akin to a combination of General Electric and Exxon Mobil in the States - a powerhouse in India with hands in countless industries)
Reliance, India's largest private company by market value, already operates the largest oil refining complex in the world, a site in the western state of Gujarat that can process 1.24 million barrels of crude a day. The facility is designed to handle the kind of ultra-heavy crude that could be extracted from Value Creation's oil sands.
Reliance also is scouting other foreign targets, including Canada's Value Creation Inc., which has large oil-sands deposits in Alberta, people familiar with the company's thinking said. (China has also been in Canada purchasing oil sand deposits) Smaller rival Essar Group is stepping up its own bargain hunting abroad, with an eye on assets that Royal Dutch Shell PLC and other oil majors are unloading.
In recent months, Reliance and Essar, both based in Mumbai, have hired top executives from global oil majors to aid their international expansion efforts.
Meanwhile, India's flagship state-run oil company, Oil & Natural Gas Corp., said recently it may spend as much as $30 billion over the next decade on an international acquisition binge.
Indian companies are scouring the globe to secure crude resources and reduce their dependence on imported oil. India imports 70% of its oil, with a price tag of more than $90 billion annually. The companies are also looking to expand their global footprint with refineries and other assets in far-away markets. And they want relief from the regulatory headaches of their home turf, where government influence in exploration and pricing of natural resources has slowed expansion.
India is likely to face competition as it shops for oil and gas, especially from Chinese firms. Last summer, Sinopec Group, a large Chinese oil company, paid $7.2 billion for Addax Petroleum, a Geneva-based company that has oil and gas assets in the Middle East and Africa. "We see the international players being more often the buyers of these types of assets now, and there's no reason to think that won't continue," said Jon McCarter, oil-and-gas transactions leader for the Americas at Ernst & Young.
Cross-border acquisitions by Indian companies fell 37% last year to $11.4 billion, according to Dealogic. But activity is picking up as Indian companies rev up for big-ticket deals in sectors such as energy, telecommunications and media.
The country's largest cellphone company, Bharti Airtel Ltd., offered $10.7 billion last week for most of the Africa assets of Kuwaiti operator Mobile Telecommunications Co., known as Zain. Essar Group, a conglomerate with $15 billion in revenue and interests in steel, oil and telecom, controls oil exploration blocks in places including Nigeria, Madagascar, Myanmar and Vietnam. Now the company has emerged as an eager buyer for European and U.S. oil companies that are struggling with extra refinery capacity due to slumping demand for fuels.