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Money still has a nationality
February 04, 2006
Back in the mid-1990s, two chief executives of large Indian companies were battling their largest shareholders: Russi Mody of Tata Steel had locked horns with the board of Tata Sons, and K L Chugh at ITC was fending off a bid for management control by ITC's largest shareholder, the London-based BAT.
In the first case, the government-owned financial institutions (significant shareholders in both companies) backed Tata against Mody, but in the second they voted against BAT. I asked the then finance minister, none other than Manmohan Singh, why the institutions, whom he controlled, were voting differently in identical situations -- with the only difference being that Tata Sons was Indian, while BAT was British. "That is a difference," Dr Singh responded.
That episode springs to mind when watching the French and Luxembourg prime ministers come out openly against Mittal Steel's hostile bid for Arcelor -- using a variety of spurious arguments (there is no industrial project involved in the bid, Mittal wants access to Arcelor's cash hoard so as to invest in East Europe and the United States, how can a company be bid for without prior discussion, and so on).
The issue, let us not fool ourselves, is that Mittal is not French. We can't say he is Indian, though he was born in India, because he is based in London, his company is registered in the Netherlands, and he has plants in a dozen countries in the world and none in India. In a business sense, he is either European or a true multinational with no nationality. But that, it seems, is not good enough for France or Luxembourg.
Two other episodes are worth recalling. One is the Italian central bank governor, Antonio Fazio, seeking to favour an Italian bidder for an Italian bank, as opposed to a bid by ABN Amro of Holland (Fazio had to resign in December, partly as a consequence). The second is Michael Heseltine resigning from Margaret Thatcher's cabinet two decades ago because he wanted European firms (and not America's Sikorsky) to take over Britain's troubled helicopter company Westland.
And so it would seem that, even in the age of globalisation, money has a nationality. It is important, however, to distinguish between emotional and policy responses.
It was understandable and harmless if Americans felt a twinge of regret when, in 1989, Japan's Sony bought Columbia Pictures, with its archive of Hollywood classics; and for some British to do the same today when Singapore and Dubai slug it out for control of P&O, with its 168-year history of independent operations.
The same thing happened in India, when the government sold out of the country's auto giant Maruti, and handed over shareholding control to Suzuki. The important thing is that, in all the three cases, the sale has gone (or will go) through.
Two points need to be made. The first is that attitudes to foreign ownership of Indian companies have become surprisingly liberal. As much as 30 per cent of the total stock of India's listed companies is now owned by foreigners, and no one seems particularly concerned.
Admittedly, the bulk of that is portfolio investment, without the emotional overlay of corporate control. But in recent weeks Merrill Lynch has bought out Hemendra Kothari, and Switzerland's Holcim has moved into Gujarat Ambuja Cement as well as ACC, without anyone in the government getting on to the soap box, a la de Villepin in France or Juncker in Luxembourg.
I am also suspicious of businessmen who wrap themselves in the national flag, because (let us not forget) it was Indian businessmen who stashed away their billions in Swiss banks. What nationality did their money have then?
The second point is that the government should worry about markets staying competitive, and value addition taking place in its territory. If ITC buys Indian tobacco and other raw material, gives employment to Indians, pays taxes to the government here, and serves Indian consumers, its ownership and control become secondary issues.In the vast majority of industries, the government's role, therefore, should be to create the conditions in which companies are encouraged to invest and expand, and not to worry overly about ownership issues.
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