Can Rabobank Whet Its Appetite For Success?

BANKING
"Can Rabobank Whet Its Appetite For Success?

The Dutch bank has cooked up not only an unusual entry-strategy, but also unconventional business plans.

By Gautam Chakravorthy

Managing Director (from left) A.Kapoor, H.Singh, H. Hannart, R. Kapoor and A. Nillesen In Brazil, OJ zips along at 40 km an hour. And it travels in style to the outside world. A complex grid of pipelines, spanning the vast expanse of Brazil's orchards, feeds that county's most colourful export to its ports. All because of Rabo International, Rabobank's overseas arm, which conceptualised and financed it. Incidentally, Brazil produced 11.02 million tonnes of citrus juices in 1997, 60 per cent of world output. By contrast, India--the second-largest producer of fruits in the world--produced 27,720 tonnes of all kinds of juices, including orange juice, in 1996-97. Thank OJ, Rabobank is here.

Pipelines? Or pipedreams? That's the spectrum facing The Netherlands-based Rabobank (1998 assets: 550.50 billion Dutch guilders, or Rs 11,69,812.50 crore) as it walks down the unchartered road of agriculture- and food-financing in this country. On August 1, 1998, the Dutch giant set up a Non-Banking Finance Company (NBFC), Rabo India Finance (Rabo India), in Mumbai. While Rabobank holds 75 per cent of its $25-million (Rs 105 crore) equity, the rest is divided among its Indian managers.

Says one of Rabo India's 5 Managing Directors, Ashok Kapur, 55, who looks after Treasury and Strategy: "Our strength lies in providing specialised business and financing solutions to corporate entities." So, Rabo India is not targeting the retail farmer, or even co-operatives for that matter. Instead, it will provide financing solutions to transnationals and Indian companies in the processed foods business as well as companies in the traditional commodity foods business, like edible oils and sugar.

However, Rabo India expects more than half its business to come from advisory services. Thus, its role can vary: recently, a large transnational sugar company asked Rabobank to build, operate, and transfer a greenfield sugar factory in North Vietnam. Similarly, in the case of healthcare, another of its focus areas, Rabo India will bank on its knowledge-base. Apart from targeting the financing needs of pharma companies, it will provide advisory services to companies on the M&A and joint venture trail. In particular, Rabo India is targeting hospitals and medical equipment-manufacturers as candidates for private equity funding.

All told, Rabo India wants to grow its assets three-fold by 2001 to Rs 1,200 crore. While 50 per cent of its business will come from food and agriculture- and healthcare-financing, the rest will accrue from fee-based services as well as its plans for the telecom, airports, and urban development (water-and-sewage-development) sectors. However, while the healthcare sector is already in the midst of a metamorphosis, the food-processing sector in the country is in its infancy, bogged down by policy and infrastructure bottlenecks.

THE STRUCTURE. By establishing an nbfc, Rabobank's entry-route is unique--and smart. Explains Rabo India's Kapur: "This gives us greater flexibility in opening branches without regulatory restrictions, and, moreover, it allows the entity to do business as and when it wants to without any mandatory requirements." True, especially since it would have taken anything between 4 and 5 years to get permission to set up a full-fledged branch.

While its NBFC status means that Rabo India will not have access to cheap funds, Rabobank is not worried. Armed with $25 million, Rabo India can leverage itself 10 times on the assets side, and to raise the requisite liability, it will shortly issue bonds in the domestic wholesale market, backed by the guarantee of its AAA-rated parent. The nbfc's disbursement target for 2001: Rs 600 crore. Adds Sunil Chopra, 44, Regional Executive, anz Grindlays: "Foreign banks meet their priority sector-lending requirement through export-financing. In that sense, the objective of Rabo India is laudable."

Moreover, Rabo India has roped in 3 banking professionals: Kapur (former CEO of abn-amro), Harkirat Singh (former CEO of Deutsche Bank), and Rana Kapoor (former general manager of ANZ Investment Bank). The trio, along with Hans Hannaart and Anton Nillesen (both on deputation from Rabobank), manage Rabo India. Explains Hannaart, 52, Managing Director (Food & Agribusiness), Rabo India: "We wanted to hit the ground running, and avoid any pitfalls. And we also wanted to avoid the pangs of break-up, which joint ventures are wont to."

THE GAMEPLAN. Over and above the bread-and-butter traditional banking products--export financing, loan syndication, cross-border leasing, and securitisation--Rabo India plans to offer solutions for projects of over Rs 10 crore in size in the foods and healthcare sectors. Ergo, Rabo India has customised products like agri-business project-financing, structured commodity trade-financing, off-balance-sheet-financing structures, and acquisition-financing. It offers strategic advisory services for M&A and joint ventures--and even R&D. Says Hannaart: "Our financing norms and funding-patterns are different from others."

Agrees Milind Sarvate, 39, CFO, Marico Industries: "There are peculiarities in the food-processing business, and the Indian banks may fall short there. Hence, the need for a specialised funding agency." Even though rural financing is looked after by Indian banks, Rabo India hopes to tap what it says is a growing market for specialised products in these segments. In fact, the 41-year-old Kapoor, Managing Director (Corporate Finance), Rabo India, avers: "We have been profitable from the first month itself. We are handling several mandates, including M&A deals in the foods and agri-business segments."

In particular, Rabo India is concentrating on the funding of integrated sugar units. With a consolidation under way in this sector, it will also provide M&A services--including acquisition-financing--to companies. Similarly, it plans to target the troubled edible oils sector, hoping to work out joint ventures with transnationals. And then, it senses a technology-gap in sectors like dairy products and fruits and vegetables, which have begun moving up the value chain.

How much of all this has been translated into business? In the absence of data, it is difficult to say, but it can be safely assumed that the revenues from Rabo India's core areas are minimal. While the NBFC does mention clients like Hindustan Lever, SmithKline Beecham, and Reliance Agro, it is not clear if the NBFC is offering them its sector-specific products. Finally, the healthcare sector is already in the throes of consolidation, and while Rabo India may be getting clients, it is up against stiff competition. For the moment at least, Rabo India's traditional banking products are bringing in the moolah.

THE ROADBLOCKS. There could be many speed-breakers. Says G.R. Sharma, 55, Deputy General Manager, Dena Bank: "Even though the nationalised banks do fund agriculture, there is scope for additional players in this sector." But the fact is that the banks have burnt their fingers while funding the aquaculture and floriculture businesses. And the reality is bleak: with a 7 per cent share of the world's production of fruit and 11 per cent of vegetables, India processes only about 1 per cent commercially.

Complains Rajesh Puri, 45, Vice-President, IndusInd Bank: "The saddest part is that there has been no co-ordinated effort for corporatising agriculture." But while Rabo India is counting on the potential of the sector, it could take another 5 years--if not 10 or more--for it to be realised. Therefore, Rabo India is moving into other businesses: its investment banking division has participated in the Tata Electric and Industrial Development Bank of India loans. And it has also bought $55 million of off-shore paper in Indian companies like Grasim Industries, Vardhaman Spinning, Oil & Natural Gas Corporation, Larsen & Toubro, and Tata Sons, and is exploring opportunities in media and software.

Clearly, Rabo India is keeping itself busy while it waits for the food-processing sector to mature, which could be worthwhile since the potential is immense. After being slow to clamber onto the healthcare bandwagon, Rabobank clearly wants to be the early bird--not the early worm--in the foods sector.

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