Going global means balancing your markets

Trade to Western Europe has come down drastically and increased substantially to the US, Africa and Asia, says David Rasquinha, Executive Director, Exim Bank. Speaking with Sumantra Das, he outlines the scope of India’s infrastructure companies going global, and expresses surprise that more India’s infrastructure players are not investing their energies abroad.

Do you see an increased interest among Indian companies in overseas ventures?
Yes, there is a lot of interest for Indian companies in going global. Any company needs to have a balance of domestic and international businesses. If a company is over-dependent on one market and that market has problems then it will face trouble. Thus, it is always good for a firm to have a foothold in both. Many Indian infrastructure companies are looking at partly building their business and partly balance their risks, so that they have a business in multiple markets. At Exim Bank our role is to help them in going those markets.

What leads these companies to go overseas?
It varies from industry to industry because not all are conducive for going overseas. There is interest in taking over companies because of technology. In engineering or logistics, companies acquiring an overseas firm can give access to technology and knowhow which is not immediately available here.

Apart from investment in terms of share of exports, there is a lot of interest in Africa.

It is a continent bigger than China, India, US, Brazil, and Canada combined together, but its GDP is the same as that of India, may be marginally less. So one can imagine the number of opportunities when there is abundance of land but the GDP is the same. Opportunities are big for infrastructure in railways, roads, power generation and transmission, to name a few.

Do you believe that the major chunk of your business will come from Africa?
Definitely. Of our total number of overseas offices, three are in Africa. In that way, 50 per cent of our overseas representative offices are in Africa. Under the government lines of credit-we are the operating agency on behalf of the government-approximately two-thirds of the lines of credit portfolio is directed towards Africa. So for us Africa is a very important market in terms of business linkages and people linkages.

Out of the lines of credit portfolio loan that accounts for about 31 per cent of our loan portfolio, about two-third is towards Africa. We can straightaway have 20 per cent under the lines of credit alone for Africa. Besides, under our new programme, buyer’s credit for under the national export insurance account again the maximum inquiries are Africa.

In terms of overseas investment also, we have had Indian company’s steel plant in Ethiopia. We are looking at a denim project in Ethiopia and agricultural projects in other parts of Africa, so I think the share is very significant.

Which other geographies is Exim Bank looking at?
East Asia is acquiring importance. In particular, we are hopeful on Myanmar. Last month we got licence to start operation and we set up our office at Yangon. We believe Myanmar will bring tremendous opportunity for Indian players as the country will work as a linkage between Indian and South East Asia.

What is the reason behind the decreasing international investments over past few years?
Yes, the number is shrinking, probably because of the overall market is gloomy. For example, in Western Europe where the impact of slowdown is more, a lot of Indian companies, textiles and gems and jewellery firms in particular, have a presence. As gems and jewellery are discretionary purchase it is facing a lot of trouble there.

The same thing happened with textile sector too. These are certain things which are beyond the control of the Indian exporter. One can be very competitive and can make an excellent product but as overseas customer does not have the purchasing power or the inclination buy then you have to look for new customers.

However, there is a change in the direction of trade. Our trade to Western Europe has come down dramatically and to the US, Africa, and Asia it has increased substantially and will increase gradually over a period of time.

As a lender, do you consider socio-political risk for Indian investor is a major concern?
We always encourage Indian companies if they are investing overseas get a thorough legal due diligence from the start and make sure that the agreements are water tight because something can always go wrong. One will be exposed to a socio-political situation in terms of the award of the contract and in terms of the award of the various agreements under that.

What kind of global opportunities are there for our infrastructure companies?
I would say there is more business than people can handle; the demand abroad is so much that I am often surprised why Indian companies do not go beyond some extent. They are concerned about risks and to some extent their balance sheets are weakened because of the build up of the receivables. But to my mind, the opportunities are huge overseas.

I pointed out about Africa but the same thing applies world over. For example, there is a demand for wind power just every part of the globe and wind power is such that the initial capital cost is high but once your project is up and running, cash flows are very steady and Indian companies taken them steady operations and maintenance revenues and these are projects which have worked very well.

We have financed a couple of such projects in Brazil, US, South Africa and Europe, and these projects are doing very well. Similarly, Indian companies in power transmission are recently among the best in world so the opportunities are huge. I wish more Indian companies would look overseas.

Which are the sectors become lucrative for Indian investors?
Indian infrastructure players are going abroad mostly for segments like power generation and power transmission, as both these sectors are very large and have big potential. Besides, railway is a potential sector for Indian investors in a big way and major chunk of support is especially coming from Ethiopia, Myanmar and from some parts of Africa. While, industrial projects like cement and textiles are also becoming lucrative to Indian investors. But actual investment is very less due to various reasons.

Why do you think Indian companies have not explored overseas market yet?
There are two major reasons for this. One is weak balance sheet which can only be repaired by the companies together with the banks because the problem has arisen for various reasons but it has to be repaired by them. The other is the mindset. There is often a mindset that these are different countries, people and even language. Thus most of the Indian companies don’t feel to invest all of a sudden.

As a lender, we are always there to help and we have been helping many companies. The government has also come up with a number of initiatives under the lines of credit that is close to about $8 billion for the business which has come to Indian company that is buyer’s credit scheme under National Export Insurance (NEI) where the entire risk, political and commercial, is taken by the NEI account.

We are in fact asking Indian companies to look at this, take advantage of this facility and invest abroad. There will always be difficulties, but if we focus only on the difficulties then nothing will happen. There are ways to manage that risk otherwise the rewards are not going to follow.

Does Exim Bank have any plans to promote SME and MSME segment?
Definitely we want to assess that part. I do believe SMEs have a major role to play in the export effort, mostly indirect but sometimes direct also. We have also done internal studies to let our SME sector grow. But the sector needs to scale up the production to do business overseas. In India, where an SME definition is based on the assets involved whereas internationally the definition is the number of employees or the size of the business. This idea here needs to be changed to give focus to the sector.

What kind of privilege can infrastructure companies expect from Exim Bank?
If you look at our infrastructure funding overseas under the lines of credit, we have done 20 year funding. Under the buyers’ credit it has gone right up to 15 years. At Exim, we have that ability because of our 100 per cent ownership by the Government of India and we are rated on par with the government and as a policy bank, we get the finest rate involved in the international market. In January for example, we did a 10 year bond. Not many entities in India have been able to raise 10-year bond and we raised 10-year bond at the finest pricing at that point. In this way, we are able to raise medium to long term funding which we can then deploy in medium to long term assets also.

Are you planning joint ventures with foreign banks to increase global presence?
Definitely, we have very good linkages to give multilaterals with the International Finance Corporation Washington, Asian Development Bank and African Development Bank.

We are also trying to set up a joint venture in Africa together with IL & FS, State Bank of India and the African Development Bank. But this will be a project development company and I already mentioned about the amount of potential there in Africa.

Is Exim Bank selective on financing projects?
Case to case definitely. After all, if the bank is going to commit money and this is money from the public. If we are going to commit public money then we have to do a due diligence as we have a responsibility to the people and the Government of India. But ultimately, we are into the business, so I do not think any bankable project will be refused.

We have Indian companies who are very keen on looking overseas where we are taking first tentative steps and trying to encourage them to take bigger steps.

What is your outlook on infrastructure sector?
We have slowed down a little bit in the last year but the potential remains strong for a number of reasons. Companies in India have the advantage of a huge ready domestic market and the potential to explore export market too. Even if one market gets into trouble, there is another market to balance. How many other countries do have this advantage? If a bank is in a small country, then it doesn’t have a domestic market to fall back on, it is totally dependent on the international market. Here in India, we do not have such problems. So for us, scale of business can be achieved from day one. Secondly, we have advantages in a number of industries where we have core strengths.

Till 2011-12, exports were on an upward trend. It is only in 2012-13 that exports tapered off. But if we are making discretionary item if somebody can choose to reduce his consumption then it is going to be difficult. We have learnt the lesson that we have to make shift from discretionary to nondiscretionary. Instead of selling commodities, we have to be selling processed and instead of selling textiles we should be selling textile engineering machinery. This is something which we need to see happening in India.

Export-Import Bank of India is the premier export finance institution of the country, set up in 1982 under the Export-Import Bank of India Act 1981. The Bank supported 85 project export contracts secured by 47 companies in 23 countries, reflecting the capabilities of Indian corporate to secure and execute diverse range of projects.