Focus View
Overseas investments come with huge risks
None | 02 Mar 2018 00:30

News of tycoon Ananda Krishnan’s Aircel Ltd filing for bankruptcy in an Indian Court recently, arising from high debt and increasing losses, is a sobering lesson on the realities and risks of investing overseas.

The Indian phone operator’s debt is reported to be in the region of 155 bil rupees (RM9.3 bil). Ananda’s Maxis Communications Bhd holds a 74% stake in Aircel.

Ananda entered India’s phone market, the world’s second largest by users, in 2005 by buying a majority stake in Aircel for about US$1 bil (RM3.92 bil) and spent billions more trying to build the business, according to reports.

Aircel said recently it has been “facing troubled times in a highly financially stressed industry, owing to intense competition following the disruptive entry of a new player, legal and regulatory challenges, high level of unsustainable debt and increased losses”.

Notwithstanding foreign exchange risks, Malaysian companies with overseas investments expose themselves to foreign countries’ regulatory policies which can change overnight, especially in nations facing political instability.

With the ringgit appreciating against most foreign currencies, companies should relook their overseas investment strategies and make the necessary adjustments.

While foreign expansion is a logical step for progressive companies, they should nevertheless exercise greater caution in their forays. They need to do thorough market research, be aware of competitors and regulatory pitfalls, and have a strategy to mitigate potential risks.

If they don’t, they may well find themselves in a financial black hole.

 



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