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L. BROOKS ENTWISTLE
MD & CEO/Goldman Sachs (India) Securities |
Investment
banking is among the toughest businesses to be in; but it is also
among the most rewarding. India has been a relatively late starter
in this field, and for a long time, prior to 1991, a large part
of it was restricted only to the capital markets. But that has changed
dramatically over the last 15 months, courtesy some high voltage
mergers and acquisitions (M&A) activity. According to Grant
Thornton, in 2006, there were 480 M&A deals involving Indian
companies; the total transaction value: $20.3 billion (Rs 89,320
crore). Sounds impressive? Then sample this: total M&As in the
first two months of 2007 add up to more than $30 billion (1,32,000
crore), courtesy the Tata-Corus, Hindalco-Novelis and Vodafone-Hutchison
Essar deals.
These numbers are reason enough for India to start
blipping furiously on the radars of global investment banks. The
number of big ticket M&As, they are convinced, will only grow
in this country; and they all want a piece of the action. That
is one of the reasons why several MNC I-banks are coming in solo,
and those that have joint ventures with Indian partners, are pulling
out of their tie-ups, to trod the solo path.
| KNOW YOUR FOREIGN
BANKERS |
| LEHMAN BROTHERS
Organisation: Lehman Brothers Securities.
India Head: Tarun Jotwani, Chairman & CEO.
Prominent deals: Advisor to TA Associates' acquisition
of a 4.5 per cent stake in Idea Cellular. Joint lead manager
and bookrunner for Videocon Industries' $90-million (Rs
396 crore) convertible bond offering. Joint lead manager
for Satyam Computer Services' $323-million (Rs 1,421.1 crore)
sponsored ADS offering.
Staff strength: N.A.
MACQUARIE GROUP
Organisation: Macquarie India Advisory Services.
India Head: Varun Bajpai, Managing Director (Corporate
Finance).
Prominent deals: Co-manager for Idea Cellular's Rs 2,125
crore public offering. Lead manager for MindTree Consulting's
Rs 240-crore public offering.
Staff strength: 70.
GOLDMAN SACHS
Organisation: Goldman Sachs (India) Securities.
India Head: L. Brooks Entwistle, Managing Director &
CEO.
Prominent deals: Advisor to Hutchison Telecommunications
International (HTIL) on the sale of its Indian operations,
Hutchison Essar, to Vodafone. Acquired a 5 per cent stake
in National Stock Exchange (NSE). This deal is said to be
worth around Rs 500 crore.
Staff strength: 75.
MORGAN STANLEY
The company was earlier in JV with JM. After parting ways,
Morgan Stanley will set up its own investment banking arm.
Globally, it is focussed on five business areas-investment
banking (including M&A advisory and capital markets),
equity sales, trading and research, fixed income sales,
trading and research, asset management and private equity
and private wealth management. In India, Morgan Stanley
has an equity sales and trading platform in place following
the deal with JM. The company is expected to expand in the
fixed income businesses and private wealth management segments
as well.
CREDIT SUISSE
The operation is headed by Mihir Doshi and the company
will foray into broking and asset management over time.
It is also targeting a presence in investment banking for
which it has put together a team. This is Credit Suisse's
second innings in India.
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Goldman Sachs, for instance, parted ways with Kotak
Mahindra, its erstwhile JV partner, early last year. "When
we set up (independent) operations in March 2006, the idea was
to build the business as quickly as possible. Our immediate focus
was on getting licences for investment banking and equities,"
says L. Brooks Entwistle, Managing Director and CEO, Goldman Sachs
India. Goldman Sachs is a big name globally and a large presence
in a growing market like India was sine qua non. "We have
to be here for our local and global clients. Today, we have a
team with both global and local expertise," Entwistle says.
It has already scored big-the Vodafone-Hutch deal (Goldman Sachs
advised Hutchison Telecom International on it).
The robust earnings growth of the Indian corporate
sector and its increasingly global ambitions are exactly the kind
of stories that the pin-stripes on Wall Street like to hear. "The
global aspirations of India's corporations, the country's rapidly
growing capital markets and a further liberalisation of the Indian
market will make the country an important player across all asset
classes in the next five to seven years," says Tarun Jotwani,
Chairman & CEO, Lehman Brothers India. Quite clearly, the story
for most players will be spread across the spectrum and will not
be restricted to just plain vanilla investment banking. Companies
like Goldman Sachs have picked up stakes in the National Stock Exchange
(NSE) and the National Commodity and Derivative Exchange (NCDEX),
while Macquarie holds a minority stake in Idea Cellular. Commenting
on Goldman's decision to pick up stakes in two of India's premier
exchanges, Entwistle says: "Goldman has done this globally.
It is a great way of adding value as an investor."
| D-STREET BANKS
ON RELATIONSHIPS |
| Till a few years ago, the
Indian investment banking scenario was dominated by players
such as JM Morgan Stanley, DSP Merrill Lynch, Kotak Mahindra
Capital and Enam. The solo entry of the world's largest
I-banks into India will now force their Indian counterparts
to focus mostly on the domestic M&A segment and the
capital market. Vishal Kampani (R), Director, JM Financial
Group, points out that his company remains a strong player
in the domestic market and he brushes aside suggestions
of MNCs enjoying an advantage over firms such as his in
cross-border M&A deals. "That is nobody's monopoly,
and we could look at having alliances as an option,"
says Kampani.
He has a point. India, though an attractive
market, is not the easiest place to do business in. The
recipe for success depends heavily on relationships with
clients and an understanding of the local market. "We
are also looking at having alliances for cross-border deals
and we will take one country at a time," says Falguni
Nayar (L), Managing Director, Kotak Mahindra Capital Company
(KMCC), adding: "India is our strength and no one knows
India as well as we do." According to Enam Financial
Consultants' Chairman Vallabh Bhansali, it is important
to play to ones' strengths. "At Enam, we think our
strength lies in an understanding what we do with respect
to markets and business," he says. On the issue of
cross-border deals and acquisition financing, he says: "It
is always subject to a cycle."
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Goldman Sachs and Morgan Stanley have been in India
for a while (through JVs with Kotak Mahindra and the Kampanis
of JM Group), but the story is quite different for Macquarie.
The Australian bank has been here for 18 months and has already
established itself in the country. It is currently representing
Tata Power on its $1-billion (Rs 4,400 crore)-plus buyout of the
Indonesia-based Bumi Resources. Macquarie's expertise in the infrastructure
space was the clincher when it came to winning the mandate. "Over
time, we want to mark out our presence in both domestic and cross-border
M&As, QIBs and also be a principal," says Varun Bajpai,
Managing Director (Corporate Finance), Macquarie India Advisory
Services.
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VARUN BAJPAI
MD/Macquarie India Advisory Services |
Driving their foray into the country is the special
skills that these MNC I-banks bring. "As they contemplate cross-border
transactions, Indian clients require ideas flows, structuring skills
and stronger balance sheets," says Frank Hancock, Managing
Director (Corporate Finance), ABN Amro Asia. "Today, foreign
banks bring to the table advantages like global relationships and
global access to corporates," points out Manisha Girotra, Managing
Director and Chairperson (India), UBS Securities. Her firm has been
involved in the Vodafone-Hutch and Hindalco-Novelis deals.
Meanwhile, Credit Suisse, the Zurich-based investment
bank, will soon restart its asset management and broking businesses
in India and it is also planning a presence in investment banking
and private banking. Paul Calello, Credit Suisse's CEO (Asia Pacific
Region), had said earlier that the bank will kick off its operations
once it gets its approvals. And Morgan Stanley, which has just
parted ways with JM, will also begin its solo run in India shortly.
Says Hans Scheuttler, Morgan Stanley's CEO (Asia): "Increasingly,
banks now have to invest their own capital and take on the associated
risks. We are also increasingly coming to a situation where larger
portions of our profits are coming from returns on this invested
capital. And this is actually a demonstration of our increasing
commitment to the Indian market."
Foreign investment banks are now big players
in acquisition financing. Examples: Credit Suisse and ABN Amro helped
bankroll Tata Steel's acquisition of Corus and Hindalco's buyout
of Novelis. There is also a contrarian point of view here. "Acquisition
financing is an important aspect of our business, though it must
be said that your financiers are not necessarily your best advisors.
In huge M&A deals, we suggest to clients that we only arrange
the financing," says Bajpai. In short, there are different
hats that investment banks need to wear.
The fact that investment banks themselves pick
up stakes in companies they advise, or in those their clients
target, has come in for debate. There is an obvious conflict of
interest here, but Bajpai defends this practice, saying that the
investment team works behind a Chinese (fire) wall and there are
very high levels of confidentiality. Entwistle adds: "We
can invest alongside our clients. In an auction process, we make
sure that we bid with them and not against them."
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STUART SMYTHE
Head of Equity (India)/Macquarie Securities |
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TARUN JOTWANI
Chairman & CEO/Lehman Brothers India |
For now, the investment banking space looks action-packed
and no one is ruling out the entry of banks from Japan and other
parts of the world. The focus for all banks without exception is
to bag more business in India and sustain the flow of new products.
"Over the next one year, we should be able to offer products
related to derivatives, property business and wealth management,"
says Macquarie Securities' Head of Equity (India), Stuart Smythe.
Macquarie also intends to be a big player in the infrastructure
space and expects to do a lot of work in that over the next five
years. "This will include roads, ports, and airports, to name
a few. We will be an active principal in the space," adds Bajpai.
Lehman Brothers is not too far behind and is positioning
itself as the investment bank of choice for India Inc. "We
will offer a broad range of products, including debt and equity
issuance, M&A advisory services, leveraged finance, structured
finance, hybrid products, derivatives, and risk solutions,"
says Jotwani.
These are exciting times for these I-banks. And
if reports of Reliance, Ranbaxy, M&A and others planning mega-acquisitions
across the world prove correct, and there's no reason to believe
that they aren't, the optimism of these players will have been
justified.
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