NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS AUGUST 13-17, 2007

UNCLAS SECTION 01 OF 02 NEW DELHI 003756 SIPDIS SENSITIVE SIPDIS USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR DEPT PASS TO USTR DHARTWICK/CLILIENFELD/AADLER DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA ABAUKOL TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN STATE FOR SCA/INS AND EB/TRA JEFFREY HORWITZ AND TOM ENGLE E.O. 12958: N/A TAGS: EAGR EFIN EINV ETRD ENRG SENV IN SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS AUGUST 13-17, 2007 NEW DELHI 00003756 001.2 OF 002 ¶1. (U) Below is a compilation of Economic highlights from Embassy New Delhi for the week of August 13-17, 2007. NO BANK FUNDING FOR DOMESTIC M AND A ACTIVITIES IN INDIA -------------- ¶2. (U) In a conversation with Vishwavir Ahuja, Managing Director and Country Chief of Bank of America (BA),we learned that banks in India are not allowed to fund mergers and acquisition activities in India. Ahuja said that while BA is a leader in financing India's outbound mergers and acquisition activities -- such as Tata's acquisition of Corus steel and Birlas' Hindalco Company's acquisition of the American aluminum company, Novelis -- Indian companies cannot leverage the banking system to finance domestic M & A activities, which could be a great business opportunity for BA, he added. Ahuja observed that one of the reasons why Indian companies seek to acquire companies overseas is because of the leveraging facilities that foreign banks in India offer. Although the deals are closed overseas, the financing plans are originated in India and foreign banks underwrite the loan based on the Indian companies' balance sheet. ¶3. (U) According to Ahuja, the banking regulator, the Reserve Bank of India (RBI),is concerned that if Indian companies are allowed to borrow from banks for M & A operations, they would instead use the money to buy back their shares or play the capital markets, as has happened in the past. Ahuja said that the RBI considers capital markets and real estate very sensitive and risky for banks, and wants to limit the banks' exposure. Instead of bank loans, Ahuja believes that the growing M & A activities in India are funded by private equity or internally generated profits. In some cases, Indian companies also use resources raised from the domestic public capital market to make acquisitions of other Indian companies. Foreign companies seeking to acquire Indian companies have to bring in capital from overseas and cannot leverage funds from Indian or 
foreign banks in India. BOEING VIES FOR INDIAN DEFENSE CONTRACTS -------------- ¶4. (SBU) During a meeting with the Charge on August 16, Ian Thomas, President of Boeing International and President of Boeing India, outlined the company's strong presence and growth strategy in Indian aviation. Thomas is working closely with Boeing's Integrated Defense Systems and Commercial Planes for better coordination between the two divisions and follow through on Boeing Chairman Jim McNerny's advice to stop working as two separate companies in India. With the Indian aviation market poised for tremendous growth, Boeing plans to increase its local manpower from 300 to 3000 employees. Thomas is focused on completing Boeing's offset commitment of USD 1.8 billion from the historic Air India sale of 2005 worth more than USD 11 billion for 68 planes. Within days, Boeing will complete its MOU on an offset agreement with the Ministry of Civil Aviation. ¶5. (SBU) Boeing's future plans in India include developing strategic partnerships with Indian industry and seeking opportunities in the aerospace and defense industries. On the commercial side, Thomas projects Boeing sales worth USD 15 billion over the next 10 years and purchase of 911 plans by Indian carriers over the next 20 years. India is one of the top three markets for Boeing aircraft, along with Russia and China. As part of the company's longer term commitment to infrastructure, the company has invested USD 100 million in a maintenance, repair, and overhaul (MRO) facility in Nagpur; Boeing expects to break ground at the Nagpur MRO in October 2007. Also, the company has committed USD 85 million for a pilot and flight crew training center, now expected to come up in Hyderabad. Boeing has also sought out local Indian partners - including products worth few millions with HAL and a pending proposal (expected to be approved soon) with Tata manufacturing for a floor beam for the new 787 aircraft. Thomas NEW DELHI 00003756 002.2 OF 002 also sees India as the fifth largest potential market for raw materials production of titanium, critical for aircraft manufacturing. ¶6. (SBU) In comparison to Boeing's major competitor Airbus, Boeing has a 60 percent market share. However, according to Thomas, the company needs to be more active on the defense market. Boeing intends to offer the Super Hornet to the Indian Air Force for its upcoming Multi-role Combat Aircraft (MRCA) competition. In April, Boeing submitted a proposal to develop and deliver eight long-range maritime reconnaissance and anti-submarine warfare aircraft to the Indian Navy. The Boeing P-8I Multi-mission maritime aircraft, a variant of the U.S. Navy's P-8A, is currently under consideration by the Indian Ministry of Defense for India's maritime requirements. Boeing hopes to significantly increase defense sales in India and views India as one of the potentially largest defense markets for Boeing products outside of the U.S., following the Middle East, Japan, and Korea in importance, and bigger than Singapore and Australia. ¶7. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi WHITE