March 9, 2018 / 2:42 AM / 9 months ago

BREAKINGVIEWS-M&A rebound is good sign for Indo-Japanese ties

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to change formatting of “Docomo” throughout.)

By Una Galani

MUMBAI, March 9 (Reuters Breakingviews) - A resurgence of Japanese interest in India is worth meditating on. Nippon Steel is part of a bid for its bankrupt rival on the subcontinent, Essar Steel. That would mark a revival of high-profile dealmaking in India after several big flops. The two countries share a spiritual affinity through Buddhism; healthier financial relations will also help create the harmonious, democracy-led region that Tokyo and Washington both want.

India’s rapidly growing middle class represents a huge opportunity for Japan, a rich country with a shrinking population. Still, Mumbai’s bankers have enjoyed fewer trips to Tokyo in recent years as companies there grew wary of investing in the developing market. Data from the Indian embassy in Tokyo shows foreign direct investment peaked around 2008 and 2009, with mega-deals including NTT Docomo’s $2 billion purchase of a stake in Tata Teleservices and Daiichi’s Sankyo’s $3 billion-plus acquisition of drugmaker Ranbaxy Laboratories.

Both deals were disasters. Tata Teleservices performed badly and then, to exacerbate the pain, the Indian central bank tried to prevent Docomo from recouping half of its original investment as part of a pre-deal insurance policy agreed between the two companies. Meanwhile, Ranbaxy ran into big trouble with U.S. regulators. Daiichi Sankyo alleged that the previous Indian shareholders hid information; it eventually sold the company to a domestic rival. Both Japanese groups took their cases to international courts.

The two cases are not the best advertisement for big bets on the subcontinent. It is against this backdrop that Nippon has teamed up with Luxembourg-based ArcelorMittal to bid around $6 billion for Essar Steel. The Japanese probably hope that investing alongside the Mittal family, as a quasi-local partner, will help avoid nasty surprises. A deal would follow smaller investments by Japan’s SoftBank into tech startups and a 50-year loan from Tokyo to build a bullet train linking Mumbai with Ahmedabad.

More investment will also lend credibility to the idea of a “free and open Indo-Pacific”. This regional concept, in which authoritarian China is not the centre, is a core plank of Japan’s foreign policy, and has been talked up by U.S. President Donald Trump. It is an ambitious vision that will sound more plausible if Japanese companies can invest in India without losing their shirt.

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- ArcelorMittal, the world’s largest steelmaker, on March 2 said it would form a joint venture with Japan’s Nippon Steel & Sumitomo Metal Corp to bid for bankrupt steelmaker Essar Steel India.

- The company said it submitted a plan on Feb. 12 to India’s National Company Law Tribunal, which deals with insolvency and company disputes, to bid for Essar Steel in partnership with Nippon Steel.

- Essar Steel was one of a dozen of India’s biggest debt defaulters that were pushed to bankruptcy court last year by an order from the central bank.

- For previous columns by the author, Reuters customers can click on


Editing by Quentin Webb and Katrina Hamlin

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