Kumar Mangalam Birla disillusioned by India’s frequent policy changes.
BANGALORE: Indian billionaire Kumar Mangalam Birla is considering buying its first fertilizer plant in the U.S. to benefit from a 55 percent drop in prices of natural gas used to fuel the factories.
His Aditya Birla Group (ABNL) is seeking a “mid-size acquisition” which has access to technology that can be used in the conglomerate’s operations, Birla said in an interview to Bloomberg TV India.
The U.S. boom from hydraulic fracturing, or fracking, which uses pressurized water to drive gas and oil from shale rock has depressed energy prices, while an intelligence advisory panel said in December that the world’s biggest economy may achieve energy independence in as little as 10 years, reported Bloomberg.
“There’s going to be a huge geopolitical shift with shale gas in America,” Birla said in the interview. “This is an interesting opportunity, given the fact that we have a large exposure to manufacturing. I see companies in chemicals and fertilizer space or companies that give technology for the group’s business.”
Birla, 45, who controls India’s biggest cement producer Ultratech Ltd. (UTCEM) and the world’s largest rolled aluminum maker Novelis Inc., is joining other Indian companies including Welspun Corp., which is close to starting a $100 million pipe factory in the U.S. targeting shale gas clients. The American Chemistry Council estimates low-cost natural gas may generate $72 billion in capital investment as petrochemical companies relocate or boost spending in the U.S.
The Aditya Birla Group is targeting a 63 percent increase in revenue to $65 billion by 2016, and is also looking for acquisitions in Brazil, Thailand and Indonesia, Birla said. Half of the group’s current $40 billion turnover comes from overseas, he said.
A slump in local gas production is forcing Indian companies, including power stations and fertilizer makers, to import the fuel, which is more expensive. The government also controls prices of fertilizers, making use of costly fuel unviable.
India hasn’t added any urea manufacturing capacity since 1999, according to the fertilizer ministry’s annual report.
Aditya Birla Nuvo Ltd. can produce 1.1 million metric tons annually at Jagdishpur in the state of Uttar Pradesh. The company’s fertilizer business earns about 20 billion rupees ($364 million) in revenue from sales in the eastern states of Bihar, Jharkhand and West Bengal, according to a corporate presentation on its website.
Natural gas production at Asia’s second-biggest energy consumer declined 14 percent to 34.6 billion cubic meters in the 10 months ended Jan. 31, according to data compiled by Bloomberg. Output has declined every month compared with a year earlier since November 2010, as the nation’s biggest field operated by Reliance Industries Ltd. slumps.
In the U.S., a surge in gas production from shale rocks from Texas to West Virginia made it the world’s biggest producer of the fuel in 2009, beating Russia. Gas futures reached a decade low of $1.91 per million British thermal units in April in New York trading. They’ve slid 55 percent since Jan. 1, 2008.
Birla has spent more than $1.5 billion in acquiring assets overseas in the past two years. Since January 2011, the group bought four companies in the chemical industry, including three overseas.
It agreed to buy Columbian Chemicals Co., a Georgia, U.S.- based carbon black maker, for $875 million on Jan. 31, 2011. Three months later, it bought Sweden’s Domsjo Fabriker AB for $340 million and followed it up in July with the purchase of Terrace Bay Pulp Inc., a paper pulp mill in Canada, to secure raw material supplies for its viscose staple fiber business.
Birla would rather invest in countries including Brazil and Indonesia than back home as frequent policy changes in India discourage companies from spending in Asia’s third-biggest economy, he said in the interview.
India slipped three levels in the 2013 World Economic Forum’s Global Competitiveness Index from a year earlier, to 59. Brazil was ranked 48, while Indonesia was in the 50th position.
“Country risk for India just now is pretty elevated and chances are that for deployment of capital, you would look to see if there is an asset overseas rather than in India,” Birla said. “We are in 36 countries around the world. We haven’t seen such uncertainty and lack of transparency in policy anywhere.”
A report on February 28 showed India’s $1.8 trillion economy rose 4.5 percent in the three months to Dec. 31 from a year earlier, lower than forecast and the weakest pace in almost four years, as cooling investment, a drop in exports and government spending cuts sapped growth.
Birla has a net worth of $8.7 billion, according to the Bloomberg Billionaires Index. His wealth has declined 4.5 percent this year.
Birla’s plans to invest in the U.S. follows announcements by Austrian steelmaker Voestalpine AG to Singapore-based Indorama Group, which are hoping to benefit from cheap gas. Nucor Corp. (NUE), the biggest U.S. steelmaker, plans to start up a $750 million Louisiana project in mid-2013. This is among at least five U.S. plants under consideration or being built that would use gas instead of coal, said Bloomberg.
Indorama Group, a polyester maker operating in more than 20 nations, plans to spend $4 billion on chemical plants in gas- producing countries, including the U.S.
“A lot of manufacturing will come back into North America,” Birla said. The U.S. looks very attractive from a manufacturing point of view, he said.