FEER(1/25): India Offers Singaporean Cos Great Opportunities
Updated: Wednesday, January 17, 2001 05:15 PM ET
LIFE SOMETIMES IMITATES ART. Just as, in Hindu mythology, the elephant-headed god Ganesha rides around on the back of a rat, giant India is hoping to gain traction from investments from tiny Singapore. Companies in the Lion City see opportunities in India's vast hinterland in everything from highways, ports, distribution and property development to health care, information technology and telecommunications. Indeed, new investments in India are being touted every day in Singapore's newspapers.
For instance, NTUC Fairprice, Singapore's largest supermarket operator, is in negotiations to create a joint venture with the Apollo Group, one of Asia's largest hospital and health-care management companies, based in Chennai (formerly Madras). The pair are expected to sign a deal to set up a pharmacy and retail chain of convenience stores in petrol stations run by Indian Oil Corp., the state-run petroleum company that will also be tied into the venture.
If the terms are agreeable, a deal to set up about 1,000 stores could be struck long before the end of the year, says S. Chandra Das, chairman of NTUC Fairprice. "In the retail business, India is virgin territory," he enthuses. "All the big retail players in the world are looking at India but nobody has made a play . . . Five years ago I said the Indian market was not ready. Now I think it is."
That perception is held by an increasing number of Singaporean companies that see big dollar signs in India. That's not to say Singaporean investors are writing off Southeast Asia. But the perception that the region has not bounced back strongly enough from the Asian financial crisis, coupled with lingering political uncertainty, is driving a shift in the centre of gravity for Singaporean companies toward South and North Asian economies like those of India and China.
"As opportunities around Southeast Asia start to get fewer and far between, India becomes an opportunity because its economy is doing better than those countries around here and there's more political stability in India than there was before," says Song Seng Wun, regional economist at G.K. Goh Research in Singapore. Adds Sanjiv Ahuja, head of Indian investments at Singapore-based Thakral Group of Companies: "India was registering positive growth even as neighbouring Southeast Asia was embroiled in the Asian financial crisis, in part due to the fact that the currency operates in a controlled environment. And it's an enormous market -- you can't ignore it. India is going to be the next big investment target."
In addition to pure investment opportunities, Singapore hopes to tap into India's vast pool of highly skilled human resources. "There are significant synergies," explains Daniel Gay, an analyst at consultancy Strategic Intelligence in Singapore. "Singapore is a hi-tech country with relatively high labour costs, a strong international presence and a need for skilled labour. Indian programmers are highly skilled; the country needs to develop trade links and wants more foreign investment."
The nurturing of bilateral trade and investment ties is being championed at the highest levels, too. Last year India and Singapore agreed to study the feasibility of establishing a free-trade agreement. Singapore Prime Minister Goh Chok Tong and India's president, K.R. Narayanan, exchanged visits, discussing trade and investment opportunities as well as India's continuing liberalization. And in November, Singapore's minister of industry and trade, Brig.-Gen. George Yeo, took a delegation of 16 companies to the Subcontinent on a tour of four cities.
Indeed, in recent years the Singaporean government has been actively trying to encourage its companies to expand regionally. But many of the country's cash-rich, government-linked firms have been unable to buy into important companies across the border in Malaysia and in places like Hong Kong.
Last year, Singapore Telecommunications, the country's biggest company and its most widely held stock, failed in its bid to buy Hong Kong's Cable & Wireless HKT -- beaten by Richard Li's Internet start-up, Pacific Century CyberWorks. And a deal that would have linked SingTel with Malaysia's best-connected conglomerate, Renong, also fell through.
By contrast, SingTel and other local companies are making considerable headway in India. In November, Singapore Airlines entered a joint bid with the Tata Group of India to buy a 40% stake in state-owned Air-India, a bid that has been short-listed. In October, SingTel and India's Bharti Enterprises, a leading telecoms conglomerate, signed a $650 million deal to build India's first private-sector undersea cable. The 11,800-kilometre-long fibre-optic network linking Singapore, Chennai and Mumbai (formerly Bombay) will be the world's largest in terms of capacity and will be able to carry more than 100 million conversations simultaneously.
That venture followed closely on the heels of an announcement in August that SingTel would invest $400 million for a minority stake of about 27% in the Bharti Group. Coupled with the undersea-cable venture, this is the largest investment to date by a Singaporean company in India, and SingTel's third-largest outside Singapore after investments in Belgium and Thailand.
SingTel's most recent moves into India are not its first. India was on the company's radar screen as early as 1993, when SingTel bid for an operating licence in Tamil Nadu. Although it had the second-highest bid and should have won the contract, says Lung Chien Ping, SingTel's vice-president of international finance and operations, it was asked to match the highest bidding price and the company decided to withdraw from India. "As events turned out we were right in pulling out," Lung recalls. "The people who went in in the early stages found it very difficult. The regulatory environment wasn't quite what you'd call pro-investment. And the licence fees were very high, so a lot of the operators couldn't make money."
But times have changed. And since the Indian government liberalized its telecoms industry in 1999, SingTel has taken a closer look. With over a billion people, of whom on average just 3% have fixed-line connections and roughly 2.7 million own cellular phones, India's market potential is tremendous, Lung notes. "Our intention is to grow mobile services very aggressively," he says. "There is some reservation as to whether the industry will be freely deregulated and how fast they can do it . . . But we are fairly optimistic. India will have no choice. If it wants to catch up with the rest of the world, it will have to open its markets."
Move past telecoms and airlines and a flurry of deal making is under way in other areas, too. Soundbuzz, a Singaporean firm that sells music in digital and CD formats over the Internet, signed a deal late last year with a large Tamil label, Lahari Records, which has one of the largest repertoires of Tamil music in the country. Within the next three years, says co-founder and CEO Sudhanshu Sarronwala, 15% of the company's Asia-Pacific revenues (excluding those from Japan) will come from India as it signs up new labels. "The Indian music market is probably one of the most vibrant in the region as it is tied in with the film industry, the most prolific in the world," says Sarronwala. "Every movie has seven to nine songs . . . the repertoire of fresh music coming out every year is astonishing."
Gateway Distriparks, meanwhile, one of Singapore's top private-sector projects in India, announced in December an additional S$11.7 million ($6.8 million) investment plan following the completion of phase two of its logistics facility near Jawaharlal Nehru Port, India's largest container port. Investors in the Singaporean consortium own 70% of the project. On the property side, the first phase of the International Tech Park in Bangalore has been fully occupied and work on the second phase kicked off in November. The park, which will be completed in three phases, is a joint venture between India's Tata Industries, a Singapore consortium led by JTC International and the Karnataka state government. The park's tenants include General Electric, Hewlett-Packard, Hitachi, Sanyo, Siemens and Sony.
India is poised to become a hot spot for major infrastructure projects as well. The country has fewer than 500 kilometres of four-lane roads. The World Bank estimates that India's annual highway spending will quadruple soon, to $4 billion a year. Foreign contractors stand to win a large chunk of that business. Singapore's Sembcorp Engineers & Constructors, which over the last four years has been involved in more than a dozen residential and commercial property projects in India, is now shifting its focus to larger infrastructure projects with higher margins, company executives say. Company President Paul Chain says Sembcorp is looking at a handful of potential contracts, including building bridges, toll roads and power plants.
Of course, investing in India isn't without its share of headaches. Sanjiv Ahuja of the Thakral Group concedes that not all of the group's investments in India have done well. Poor infrastructure, cost overruns, slumps in the market and bureaucratic delays in getting approvals are to blame. Nonetheless, he adds, it's possible to find ways around most of the problems, and there's still money to be made.
(See related article: "Money -- Interview -- George Yeo" -- FEER Jan 25, 2001)
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