Global uncertainties hit Indian companies as outward FDI declines

The precarious state of the global economy had an adverse impact on Indian companies' overseas investments in 2011-12.

Outward FDI (foreign direct investments) by Indian companies fell by almost 30 per cent to $30.86 billion in 2011-12 vis-à-vis the previous year.

In 2010-11, India's outward FDI stood at $43.92 billion, which was a marked improvement from the overseas investment of $17.98 billion in 2009-10 and $17.14 billion in 2008-09, in the wake of the global economic crisis.

Lower equity investments and guarantees issued led the decline in overseas investment flows. The quantum of loans given to overseas entities, however, went up. Outflows in the form of equity fell by 32.7 per cent year-on-year in 2011-12, while the quantum of guarantees issued fell by 40.3 per cent. On the other hand, outward FDI as loans went up 13.3 per cent. It can be clearly discerned that outward FDI in equity was not on the top of Indian corporates' priority list in 2011-12. Furthermore, most of the deals were small in size.

Among the interesting overseas investment moves during the year was Mahindra & Mahindra Ltd's $377.96 million equity infusion into South Korea's Ssangyong Motor Co Ltd, along with an $84.42 million loan. There was also a $1 billion guarantee issued by Reliance Industries Ltd to a Mauritius-based wholly owned subsidiary, and a $556.8 million guarantee extended by Samvardhana Motherson Polymers Ltd to its wholly owned subsidiary in the Netherlands, Samvardhana Motherson BV.

In addition, ETHL Communications Holdings Pvt Ltd invested $776.88 million in its Mauritius-based wholly owned subsidiary ETHL Communications Mauritius Ltd and GVK Power, and Infrastructure Ltd extended a $1.41 billion guarantee to Singapore-based joint venture GVK Coal Developers (Singapore) Pte Ltd. During the year, United Spirits Ltd extended a $656 million guarantee to its British Virgin Islands-based wholly owned subsidiary, USL Holdings Ltd, while Videsh Sanchar Nigam Ltd extended a $100 million guarantee to wholly owned, Singapore-based subsidiary, VSNL International Pte Ltd. Adani Ports and Special Economic Zone Ltd gave a $2.25 billion guarantee to Australia-based wholly owned subsidiary, Mundra Ports Pty Ltd. Suzlon Energy Ltd pumped $172 million into its wholly-owned subsidiary in Mauritius, Suzlon Energy Ltd , as equity.

Meanwhile, outward FDI in April 2012 showed an increase with $2.67 billion, with equity deals worth $596.3 million, loans totalling $312.21 million and guarantee issuances amounting to $1.76 billion. It remains to be seen whether the momentum will be sustained during the rest of the year.