High costs pinch India M&A, but deals still on

By Saikat Chatterjee and Narayanan Somasundram

MUMBAI (Reuters) - Indian companies are finding it tougher to make overseas acquisitions as borrowing costs rise, but there are still some chasing deals, mainly in the telecoms, drugs and industrials sectors, a senior JP Morgan (JPM.N: Quote, Profile, Research) official said.

"Transactions where debt financing is an important aspect are certainly more difficult today, but deals involving companies with strong balance sheets still look promising," Ranjit Lakhanpal, managing director of investment banking and head of corporate finance in India, said in an interview.

Overseas acquisitions by Indian companies fell by nearly half, to $7.6 billion, in January-June from last year when M&A was boosted by deals such as Tata Steel's (TISC.BO: Quote, Profile, Research) Corus buy, Thomson Reuters data showed.

So far this year the big deals include Tata Motors' (TAMO.BO: Quote, Profile, Research) acquisition of Jaguar and Land Rover from Ford Motor Co (F.N: Quote, Profile, Research) for $2.3 billion and Sterlite Industries (STRL.BO: Quote, Profile, Research) $2.6 billion bid for Asarco LLC.

Deals have slowed after offshore borrowing costs rose as much as 200 basis points in the past year, feeling the impact of the global credit squeeze.

Raising funds in India has also become difficult, with the main share index .BSESN down a quarter this year depressing equity issues, while the central bank has raised its key lending rate to the highest in seven years to rein in inflation.

Bankers say India's top aluminum maker, Hindalco Industries (HALC.BO: Quote, Profile, Research), is finding it hard to raise $3 billion to replace a bridge loan it took to acquire Canadian aluminum maker Novelis in 2007.

Still, there is appetite for deals, said the 39-year-old Lakhanpal, who joined JP Morgan last year after stints with Goldman Sachs (GS.N: Quote, Profile, Research) and Credit Suisse (CSGN.VX: Quote, Profile, Research).