Sujay Mehdudia

Fewer inbound deals due to regulatory challenges

NEW DELHI: The massive infrastructure investment planned by India and China during 2009 could lead to a surge in iron ore prices again even as valuations have reduced as a result of falling prices which have had a knock-on effect on long-term iron ore contracts.

“The global recession and declining commodity prices are likely to reduce the number of deals in 2009. India faces general elections in 2009 and the political uncertainty might impact domestic deals in the first half of the year.

Cross-border activity is likely to be less affected. Inbound deals may also increase in the iron ore sector. Outbound deals, especially in coal, are likely to continue to grow given the requirements of the Indian power sector,” global consultancy firm KPMG has stated in its worldwide report “Metals and Mining 2008: The year, cash was the king” released last week.

The consultancy has said that in 2008, 11 mining and metals transactions were completed — eight domestic, two inbound and one outbound.

The total value of these transactions was $359 million. India’s investment environment still favours domestic deals, but changing regulations and high demand for coal to fuel its power plants are making cross-border deals increasingly important consolidation and diversification within the sector provided the focus for domestic acquisitions.

The KPMG report said India experienced fewer inbound deals due to significant regulatory challenges. “Private sector players are allowed to invest only in captive coal mining and cannot sell any production to third parties. As a result, foreign direct investment (FDI) in Indian mining and metals industry has remained insignificant.”