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Will Moody’s Impact M&A?
The international rating agency has also upgraded the ratings of four financial institutions, the State Bank of India, HDFC Bank, Exim Bank and the Indian Railway Finance Corporation
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Just when the merger and acquisition market seems shrouded in uncertainty, the Moody’s upgrade in India’s sovereign bond rating blows in like the east wind, promising rain. The upgrade should give a definite boost to market sentiments.
Moody’s Investors Service has upgraded India’s sovereign bond rating to Baa2 or stable, from Baa3, or positive – which is the lowest investment grade rating. The upgrade comes in the light of the fact that “risks” to India’s “credit profile were broadly balanced.” The Moody’s upgrade is the first in 14 years. Standard & Poor’s has kept India at the lowest investment grade for a decade now.
The international rating agency has also upgraded the ratings of four financial institutions, the State Bank of India, HDFC Bank, Exim Bank and the Indian Railway Finance Corporation.
Grant Thornton data indicates that investment sentiments in the country were subdued in the current calendar year, with India Inc. treading cautiously on big ticket investments. The cautiousness is reflecting in both domestic mergers and acquisitions (M&A) and cross-border transactions.
Sample this: In the month gone by, the value of M&A deals have dipped by 75 per cent. Only about 35 transactions worth $3.7 billion, were sealed in October 2017, compared to $17.3 billion across 45 deals in October last year. While the decline in value does indicate absence of larger transactions in the country, it also signals that India Inc. prefers to focus on efficiency and productivity rather than strategic acquisitions.
Now, take the entire year into consideration. Overall M&A and private equity (PE) transactions between January and October 2017 saw only a marginal increase of three per cent in deal values worth $53 billion, while volumes declined by 24 per cent (973 deals). The situation, though better, is not good enough to make dealmakers happy. During the said period, only three deals were clocked in the billion dollar category, and 34 transactions estimated and valued at and above $100 million compared to eight billion-dollar deals and 37 deals valued at and over $100 million last year.
While the kind of ‘cautiousness’ that India Inc. has adopted is obvious when there is a bit of lumpiness in the economy, the question is: When will the situation improve?
The blip does seem to be temporary and there are milestones along the road – like India moving 30 notches up on the World Bank’s Ease of Doing Business index – like the stock market ticking up and the impact of some reforms showing on the economy - and of course, the Moody’s upgrading - that signal that going forward M&E transactions could inch up too. Time to wait and watch!