The global softening in commodity prices triggered by the collapse of financial institutions in the West in the second half of 2008 may have just opened a window of opportunity for cash-rich public sector undertakings like NMDC and SAIL to go shopping abroad, says a report by consulting firm PricewaterhouseCoopers.
Each of them has more than Rs 10,000 crore as cash in their books.
A PwC study on mining deals of 2008 reveals that the mining industry, “Experienced a violent downward tailspin in the last three months of 2008 which has turned much of the deal making in the sector upside down.”
After over two years of boisterous activity in deal making in the global mining sector the situation cooled up in 2008 to post a 4 per cent drop over 2007.
The average value of deal also softened by 11 per cent.
A comparison of mining deals further revealed that the industry remained upbeat till the third quarter with consolidation activity remaining significantly higher than the previous year. However things came to a shuddering halt in the last quarter with deal value falling to $19.7 billion during the quarter ended December 2008 over $44.6 billion in the same quarter previous year.
“Our confusion is that while the short term outlook for the mining activity from western companies is subdued, the constraint and contrast in the market will create their own impetus for deal momentum,” said Tim Goldsmith, global mining leader, PWC. “Those companies that have funds available may well find 2009 to be a year when they can utilise their financial strength and achieve acquisitions at long term bargain basement prices.”
This is where PSUs like NMDC and SAIL will hold advantage with their high cash reserves.