Indian Auto Industry – A New Era

In the second half of 2007, Ford put on block two iconic British brands Jaguar and Land Rover for sale. Cash-strapped Ford, which lost about $12 billion in 2006, had been looking to sell the British luxury marques. Jaguar and Land Rover have been hit by unfavourable exchange rates and high production costs in Britain.

Two leading Indian conglomerates, Tata Motors and Mahindra & Mahindra (M&M) as well as U.S. private equity firm One Equity Partners led by former Ford CEO Jacques Nasser emerged as leading contenders.

As per industry sources M&M have pulled out the race citing complexities in the way the deal was structured. M&M decided against pursuing the deal as there were concerns related to Intellectual Property Rights (IPR) associated with the two brands. Crucial IPRs relating to the brands are locked in with the US auto major, making it difficult for the eventual winner to derive full benefits unhindered.

This development is expected to strengthen the case for Tata Motors. Tatas have emerged as the strongest contender in the race due to the group size as well as existing operations in the UK — especially after the acquisition of Corus — that helped tilt things in its favour. Unions at Jaguar and Land Rover are also backing Tata Motors' offer for the brands, according to published reports.

However the company faces potential trouble in the United States. The Jaguar’s US dealer association has expressed concerns that an Indian owner would devalue the luxury marque. Back home in India, Tata Motors is currently in the process of launching its ‘People’s Car’ with a price tag of about $3,000, which is about one-twentieth of the cost for least expensive Jaguar model.

Ford is on track to announce the sale early next year.

Sovereign Wealth Fund

Saudi Arabia is planning to establish what could be the world’s biggest sovereign wealth fund, worth more than $900 billion. Current title holder Abu Dhabi controls more than $850 billion in assets.

Of late government-owned investment funds in the Middle East and Asia are playing an increasingly active role in channelling capital to western companies. Gulf investors have spent about $70 billion on overseas acquisitions this year. With oil hovering around $90 a barrel, Gulf producers including Saudi Arabia and U.A.E. earn more than $1.2 billion a day from their energy sales.

Abu Dhabi -

1. Citigroup Inc., the biggest U.S. bank by assets, received a $7.5 billion cash infusion from Abu Dhabi Investment Authority (ADIA) to replenish capital after record mortage losses wiped out half its market value in November. With the purchase of a 4.9% stake, ADIA would rank as Citigroup's largest shareholder.
2. Another state-backed firm, Mubadala Development Co. bought a 7.5% stake in buyout firm Carlyle Group.

Dubai -

1. Dubai World invested as much as $5.1 billion in MGM Mirage, to try to tap into the Las Vegas based company's U.S. gaming and real estate earnings in August.
2. Dubai International Financial Center bought a 2.2% of Deutsche Bank AG in May

Saudi Arabia -

1. SABIC, the biggest chemicals company by market value, bought General Electric Co.'s plastics unit for $11.6 billion in a record acquisition for the Gulf.

China -

1. Bear Stearns, the fifth-biggest U.S. securities firm, sold a 6% stake to government-controlled Citic Securities Co. for about $1 billion.
2. Earlier this May, China Investment Corp., the nation's $200 billion sovereign wealth fund paid $3 billion for a stake in private equity firm Blackstone Group LP.
3. Barclays Plc, the U.K.'s third-biggest lender, sold a 6.7% stake to China Development Bank in July.

Singapore -

1. UBS, the world's largest wealth manager sold a roughly 9% stake to the Government of Singapore Investment Corporation this month to stop a fresh round of subprime writedowns.

Merrill Lynch predicts the value of assets controlled by the funds will quadruple to $8 trillion by 2011, and that they could soon exceed the entire hedge fund industry in terms of market influence.