In India, GE has been building a plant to manufacture locomotives for India’s railway system. The locos GE planned to make are diesel, and GE built the plant in the middle of nowhere to bring jobs to a region in India where there is little infrastructure or development. But at the last minute India is trying to pull a fast one on GE. Most companies wouldn’t be able to survive such uncertainty in a developing market. GE’s size allows it to swing for the fences in such markets where the best infrastructure opportunities lie. While investors wait for the issue to be resolved, they can enjoy a 4% yield on their shares. The Wall Street Journal explains the details of the deal breakdown:
General Electric Co. is in danger of losing one of its largest industrial contracts after a political shake-up in India, highlighting the risk of the conglomerate’s chase to win business in far-flung markets by investing heavily in local operations.
GE won a $2.5 billion deal in 2015 to sell diesel locomotives to Indian Railways—delivering 1,000 of the machines over 11 years—using a structure the company said would be a model for the future. In exchange for a massive order from one of Asia’s biggest economies, GE would agree to build the locomotives in a remote corner of the Indian countryside, boosting employment and the local economy.
But a new railways minister, Piyush Goyal, stunned GE leaders earlier this month by declaring that India would pull out of the deal and instead seek to transform its massive rail network to use electric locomotives exclusively. GE executives met with Mr. Goyal last week, according to people familiar with the meeting, to try to keep the deal together.
Read more here.
Dick Young
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