Indian companies, flush with cash from a booming domestic economy, are on a buying spree keen to expand their global footprints. Experts in investment banking believe the option of debt funding is one of the major reasons behind Indian Inc’s ambitious shopping list.

The recent $8.1 bn bid by Tata Steel for Anglo-Dutch steel manufacturer is being viewed as a sign of a confident India Inc and a reflection of the integration of Indian industry in the global economy.

While Corus shareholders are still to approve the purchase by Tata, if approved, the deal would substantially up the current record held by, the Tata Group. Tata’s acquisition of the US-based Glaceau, the maker of vitamin drinks, for $677 mn, is so far the largest-ever overseas buyout by a private Indian company.

That deal in turn had shadowed the acquisition of German generic-drug maker Betapharm by domestic pharmaceuticals giant Dr Reddy's in February from US-based private equity firm 3i for $572 mn.

Tata's Glaceau acquisition in turn lagged behind state-owned Oil & Natural Gas Corp Videsh's 15% acquisition of Petrobras' BC-10 block in Brazil for $1.4 bn, the biggest by any Indian company so far, which would be considerably shattered if the Tata-Corus deal comes through.

Indian companies are expected to launch takeover bids worth $10-12 bn by the end of 2006, up from about $1 bn in all of 2000. Leveraged finance is expected to be a major source of funding for these acquisitions, including the Tata-Corus deal. Other Indian bidders, looking at leveraged acquisitions include United Breweries in their bid for Whyte and McKay- backed by banks such as Standard Chartered, Citibank and ICICI. So also Tata Motors’ likely bid for American Axle at $2bn and Zoom Auto Ancillaries’ buyout attempt for Lombardini at $225 mn will both be leveraged deals as per investment banking experts.

Besides LBOs, Indian companies are looking at raising debt on their own books and on their own guarantee to fund international acquisitions. As in the case of the $565 mn acquisition of Belgium's Hansen Transmissions by Suzlon Energy that was 100% debt-financed, with the Indian company standing as the guarantor.

classic LBO involves using cash flows and assets of the target company to leverage funds to finance the acquisition. Prahlad Shantigram, MD (corporate finance & advisory), Standard Chartered Bank explains, “Leverage can be used both as a means of financing and as a risk mitigator, but it should be only used by companies with a proven track record who can show that they can run the company better than its present owners,”