Deals

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Japan Inc. is getting a raw deal in India.

Some of its high-profile investments in the country have created more wealth for arbitration lawyers in London and Singapore than they have for shareholders. Those who were expecting great things from the bromance between Japanese Prime Minister Shinzo Abe and his Indian counterpart Narendra Modi have reasons to be disappointed.

A Drugmaker's Malady
Almost a decade after buying Ranbaxy and three years after deciding to sell it, Japan's Daiichi Sankyo is still nursing the wounds of its expensive Indian misadventure
Source: Bloomberg

Two soured deals are NTT Docomo Inc.'s $2.2 billion investment in an Indian wireless venture with the Tata Group, and the $4.6 billion Daiichi Sankyo Co. shelled out to buy Ranbaxy Laboratories Ltd., a generic drugmaker. Almost a decade on, the Japanese companies have won claims to compensation via international arbitration proceedings; but in neither case is there any sign of a check in the mail.

The Docomo dispute might be quicker to resolve. Ratan Tata, who recently reclaimed control of the conglomerate in a boardroom putsch, is reportedly keen to settle. It was he who had promised to buy out Docomo at a 50 percent loss on its original investment in five years.

But when the Japanese tried to exercise their put option in 2014, the Indian group contended that in local law, a guaranteed exit price would become unwelcome foreign debt masquerading as equity; therefore, the Tatas could neither honor their commitment, nor fulfill the arbitration award the Japanese company won last year in London.

Daiichi Sankyo's misery began when it acquired Ranbaxy from brothers Malvinder Singh and Shivinder Singh in 2008. Shortly after, U.S. regulators barred more than 30 drugs made at two of the Indian company's plants and also halted reviews of new products at one of the factories because the company had falsified data. In May last year, the Singapore International Arbitration Centre awarded Daiichi a $376 million claim against the Singh brothers for suppressing facts, which had cost Ranbaxy an expensive settlement with the U.S. regulator.

That victory doesn't mean much. The siblings are contending that the Singapore award is invalid under Indian law. Daiichi, which has already exited India at a loss, is now hoping the courts there will stop the Singhs from selling a stake in their hospital chain Fortis Healthcare Ltd. before settling their claim. Earlier this month, Mint newspaper reported that KKR & Co. was in talks with the brothers to buy Fortis, which has an enterprise value of $1.5 billion. In a new twist, Daiichi claims it just found out that one of the Singh brothers' investment companies it sued to recover the money from no longer exists.

Tepid and Timid
Japan's cross-border mergers and acquisitions have shown little enthusiasm for BRIC nations
Source: Bloomberg
*Figures in gray are the worldwide total outbound M&A investments by Japanese companies.

The longer such wrangles linger, the stronger the impression that India's local laws make it impossible to settle commercial disputes with foreigners. Japanese firms aren't the most ambitious of dealmakers in emerging markets anyway. Their total acquisitions in Brazil, Russia, India and China have amounted to just $25 billion over the past six years, of which India's share has been $4.4 billion. By contrast, American companies spent $5.1 billion shopping in India last year.

Abe wants the coyness to end, and hopes for a big role in India's railway modernization. However, for long-gestation infrastructure projects, sanctity of contract enforcement will be even more important. New Delhi's tax regime is already a minefield. If Indian partners and the local law keep serving up unpalatable outcomes, then whatever appetite Japanese companies have could turn into a bellyache.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net