India tycoons got tons of cash, nowhere to invest Indian billionaire with $3.8 billion pile of cash cant find worthy domestic investment By Erika Kinetz, AP Business Writer | AP – Tue, Dec 27, 2011 8:42 PM ISTMUMBAI, India (AP) — Ajay Piramal is sitting on a mountain of cash. Yet the billionaire Indian tycoon,working in one of the worlds fastest growing economies, is struggling to figure out what to do with themoney.The problem isnt opportunity, he said. Its India."Every large investment, there was no transparency," Piramal said.His dilemma is a worrying sign for India. With the country mired in corruption, bureaucratic red tape andunclear and changing government policies, many of the men who made their billions here are sayingmaybe its time to quit India. Its got to be easier to do business elsewhere.In May last year, Piramals healthcare business sold its generic drug operations to U.S. pharmaceuticalgiant Abbott Laboratories for $3.8 billion. Piramal, a tall big man in a country that still measuresprosperity by girth, was eager to set that cash pile to work. He wanted to expand one of his chemicalplants, but was told it would take five years."The same plant could be set up in China in two years," he said. "I love India, but my customer is notgoing to wait."India, still a beacon of relatively fast growth despite a troubled world economy, should be a magnet forcapital. Instead, since the beginning of 2010, the amount that Indians have invested in businessesoverseas has exceeded the amount foreigners are investing in India, according to central bank figures.In part this reflects the confidence and aptitude of Indias maturing companies and the current malaisein the global economy and financial markets. But it also reflects deep problems at home. Indias big
coporations may be cash rich but the failure to invest that money domestically is bad news for adeveloping country that needs capital to build the roads, power plants and food warehouses that couldhelp lift hundreds of millions out of dire poverty.The frustration of Indias business elite with corruption, political paralysis, log-jammed approvals,regulatory flip-flops, lack of access to natural resources and land acquisition battles — to pick a few ofthe top complaints — has reached a pitch perhaps not heard since India began liberalizing its economyin the early 1990s."If you are an honest businessman in India, its very difficult to start up anything," said Jamshyd Godrej,chairman of manufacturing giant Godrej & Boyce. "Companies are going to operate where they see thebest opportunities and efficiency for their capital."Increasingly, thats outside India.In 2008, foreigners poured roughly twice as much direct investment into India — $33 billion — asIndians plowed into businesses overseas. By 2010, that had reversed: Indians invested $40 billion abroad— twice as much as foreigners invested in India — a trend thats continued this year.There is another, unspoken element to all the complaints. To the extent that business in India ran oncorruption, some of the old, dirty ways of doing things are being disrupted, freezing Indias alreadyglacial bureaucracy, business leaders say.Scandals in the staging of the Commonwealth Games, the pilfering of homes meant for war widows andthe irregular auction of cellphone spectrum that cost the country billions has sent parliamentarians andeven a Cabinet minister to prison.With Indians tiring of the incessant graft, tens of thousands of middle-class protesters poured into thestreets and pushed an anti-corruption bill onto the floor of Parliament.
Steelmakers cant get enough iron ore because a massive mining scandal in the southern state ofKarnataka prompted a court to order the closure of illicit mines that account for a fifth of iron oreproduction in the country.The bureaucrats — even the honest ones — are reportedly so scared of being punished they arerefusing to make the decisions needed to make the country run.Piramal is not unpatriotic. Each room in his executive suite is named after an Indian epic hero: Arjuna,the most pure; Dhananjay, acquirer and master of wealth. Theres a quote from the Upanishadsscriptures on the wall.His office sits in a one million square foot office park in Mumbai his family built. The buildings aroundhim — white with blue glass that flashes back the unforgiving sun — bear his own name in large blackletters: Piramal Towers.Piramal had the will and the means to build power plants and roads.Instead, his Piramal Groups largest investment to date has been in one of the office parks tenants: theIndian subsidiary of the British telecom giant Vodafone Plc.Last September, when he got the first payout, of $2.2 billion, from Abbott, the phone started ringing."Because people knew we had money, we had so many people approaching us for projects in theinfrastructure sector," he said. "These people had no experience and no knowledge and no track recordof having built a business in any area. And yet they were coming to us saying we have licenses andapprovals. That just didnt sound right or smell right."Each day, they paraded through his office: The investment banker who decided to build a 500 megawattpower plant, the coal trader assured of a government coal allocation, small-time miners with prettypresentations promising land, licenses and financing.
"Theyd name politicians from the center and the state who had it all tied up for them," he said. "Itdidnt sound right. Obviously there were things going on in the system."Road and port projects werent much better, he said.Piramal also looked at investing in engineering and infrastructure services companies, but couldnt makesense of their books."We couldnt find anything," he said. "People get greedy. In their desire to get good valuations theyresort to, if I can say, creative accounting."Today, Indias infrastructure companies are known as great wealth destroyers."Infrastructure investment has become untouchable, a sure way of losing money," said JagannadhamThunuguntla, head of research at SMC Global Securities. He calculates that four of Indias topinfrastructure companies — GMR Infrastructure, GVK Power and Infrastructure, Lanco Infratech andPunj Lloyd — have lost over 80 percent of their value since 2007. A fifth, Larson & Toubro is down 50percent.Piramal may have dodged a bullet, but shareholders in Piramal Healthcare arent happy. Despite a $600million special dividend and share buyback, the share price has sagged since the Abbott deal wasannounced on May 21 last year. Theyd like to see the Abbott cash productively deployed. Instead, muchof it is sitting in fixed deposit accounts.Piramal said he really does want to run a pharmaceutical company and be the first Indian company todiscover a world-class drug — despite his dabbling in telecom, financial services and real estatefinancing. Its just that pharma cant absorb all his cash. He plans to sell the 5.5 percent stake he pickedup in Vodafone Essar for $640 million in a few years, when Vodafone Essar issues shares in an initialpublic offering, he said.
He has also launched Piramal Capital, to make real estate and infrastructure loans, and spent about $50million to acquire IndiaReit, a real estate investment company.Meanwhile, his thoughts have turned to Boston, where he set up IndUS Growth Partners with aprofessor from Harvard Business School to look for buying opportunities in the U.S., in security, financialservices and biotechnology. And he said hes still planning to spend over a billion dollars onbiotechnology acquisitions in North America and Europe."India was going more towards capitalism than socialism," Piramal said. "I think were going back.Capitalism went to too much excess. Corruption levels went to the extreme."He said hell announce his first overseas acquisition by March