Caution is king in outbound India resources deals

By Joseph Chaney and Narayanan Somasundaram - Analysis

HONG KONG/MUMBAI (Reuters) - Indian resources giants such as Oil and Natural Gas Corp (ONGC.BO) are likely to hoard cash and shun big overseas deals despite market expectations they should seize distressed firms struggling in the financial crisis.

Financing difficulties and fears of making the wrong move in a dismal market with little pricing visibility are scaring Reliance Industries (RELI.BO) and other Indian firms away from large overseas targets, analysts say.

That's in stark contrast to rival China, whose state-backed firms are plowing billions into Australian resources this year, including aluminum giant Chinalco's $19.5 billion tie-up with Rio Tinto (RIO.AX)(RIO.L).

India was once expected to go toe-to-toe with China and scour the globe for quality mines, oil fields and other natural resources assets being sold on the cheap.

But that's far from the reality.

India's outbound resources acquisitions have fallen nearly 86 percent in the first quarter to just $170.7 million, Thomson Reuters data shows. In China, first quarter outbound resources acquisition volume is up nearly a third to $21.2 billion.

"Given the global liquidity situation and resources available to the companies, such strategic acquisitions have clearly taken a backseat," said Kamlesh Bagmar, a Mumbai-based analyst at Prabhudas Lilladher.

SLIM FUNDING

Unlike China -- where cross-border acquisition plans are driven by the government and are less bound by funding constraints -- India's government is unlikely to extend credit to state-owned companies, and banks are reluctant to lend to privately held firms in the current environment.

India's oil giants, many of which enjoy state-backing, are particularly discouraged from striking out abroad, spooked by plummeting oil prices and a cloudy recovery outlook.

"There's too much uncertainty around as far as the economic scenario goes," said Vishwas Katela, a research analyst with Anand Rathi Securities.

"That, along with volatile crude prices, may be deterring Indian oil explorers from looking at assets abroad," Katela added. "Also, funding is an issue."

ONGC, India's largest energy explorer, already has its hands full, and is unlikely to make any big moves in the near-term.

Last year it agreed to acquire Russia-focused Imperial Energy for which it forked out over 1.3 billion pounds ($1.91 billion), a price agreed upon when oil was around $130 a barrel.

U.S. crude hovered around $53 a barrel on Monday down from a record $147 per barrel last July.