Monday, November 20, 2017

Investment News and Commentary from Emerging Markets in Asia - China, India and ASEAN

About discusses business and investment news rising from the geopolitical relations of China and India, and the interactions these two countries have with the rest of emerging Asia.

China Model Perceived as Barrier to India’s Acquisition of Mineral Assets

By Ian Bhullar

Jun. 25 – Indian policymakers see China’s state-supported model of acquiring commodities abroad as a barrier to India’s own pursuit, according to an article published in the Business Standard last week.

China’s acquisition of mineral resources is supported with extensive financial and diplomatic infrastructure, including favorable loans from state-owned banks, direct government underwriting, foreign aid and multilateral initiatives like the Forum on China-Africa Cooperation. Amongst many deals of this kind, the state-owned China National Petroleum Corporation in 2005 bought the former Soviet Union’s largest oil company, Petrokazakhstan; in the same year the Chinese government awarded US$2 billion of loans to Angola in exchange for oil deals.

A recent report by the 12th Plan Working Group on Coal suggests that Chinese competition for assets is blocking the way for Indian resource-seekers. Over the past two years, India has completed US$5 billion-worth of foreign acquisitions in the coal and mining industries (in both the public and private sectors), whereas Chinese companies have completed deals worth US$21 billion.

“In the face of a government-backed Chinese merger and acquisition model, it would become difficult for Indian companies to acquire coal assets, or any other mining assets for that matter, in emerging economies like Mozambique, Indonesia and South Africa,” the 12th Plan Working Group on Coal has said in a recent report.

However, the “China Model” may be unfeasible for India.

“Copying the Chinese model may not work for India, especially because providing soft loans may be difficult, owing to the bad financial situation of the government,” Amrit Pandurangi, senior director at Deloitte Touche Tohmatsu, told the Business Standard.

India’s barriers are also internal, however. Of the aforementioned US$5 billion of foreign acquisition, India’s only major public sector deal saw the National Mineral Development Corporation (NMDC) buy a 50 percent stake in Australia’s Legacy Iron Ore Limited. for US$20 million. An attempt by Coal India Limited to buy a 30 percent stake in Indonesia’s PT Golden Energy Mines last year failed due to delayed approvals from Indian government ministries.

These concerns come as plans are unveiled to establish a new body to replace the state-owned consortium, International Coal Ventures Limited (ICVL). ICVL, a joint venture between Coal India Limited, NMDC and three other public-sector undertakings, was charged with acquiring overseas sources of coal. ICVL has been deemed unsuccessful, with Coal India exiting the consortium last month.

The outlook for the new consortium is similarly bleak. Alongside competition from China, business leaders have suggested that high levels of risk aversion among the directors of public-sector undertakings serve to inhibit investment.

Related Reading

Coal Consumption Marginalizing China’s Renewable Energy Gains

China Overtakes Japan as World’s Top Coal Importer

Report: Climate Change Could Hamper China’s Rise

China, India Favorites to Mine Afghanistan

India, China Vie for Australian Coal Fields

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