Mumbai: Wall Street firm Goldman Sachs Group Inc. is betting big on India even as it is fighting a lawsuit accusing it of fraud, filed by the US Securities and Exchange Commission, which claims the investment bank withheld information about a financial instrument based on mortgages.
Goldman Sachs has denied any wrongdoing.
In a rare interview, Brooks Entwistle, managing director and chief executive of Goldman Sachs (India) Securities Pvt. Ltd, said on Wednesday that the one-off derivatives deal has no impact on its India operations and that the i-bank’s plan in the country is getting stronger.
Entwistle has been meeting government officials and corporate clients across the country in past few days to explain this.
“As the firm has stated clearly in the press, Goldman Sachs would never condone one of its employees to mislead anyone. Were there ever to emerge credible evidence that such behaviour occurred, we would be the first to condemn it and take all appropriate action,” he said. “In the meantime, we are very focused on continuing to serve our important Indian clients and help them achieve their goals and ambitions.”
Goldman Sachs, which opened operations in India in March 2006 after severing its long relationship with the Kotak Mahindra Group, has so far invested at least $2 billion (Rs8,880 crore) in 45 firms and plans to invest more.
Expanding business: Goldman Sachs India managing director and chief executive Brooks Entwistle. Abhijit Bhatlekar/Mint
It now offers investment banking, broking, offshore asset management, fixed income securities, private equity and non-banking finance business, but is keen to enter commercial banking and the business of buying and selling government bonds, or primary dealership.
“We have applied for a banking licence in mid-2009 and also a primary dealer licence in late 2009,” Entwistle said.
There are 20 primary dealers and the possibilities for this business are huge as the Indian government borrows heavily from the market to bridge its fiscal deficit. It plans to borrow Rs4.57 trillion this year, marginally more than $4.51 trillion last year.
Goldman Sachs manages about $1 billion through an offshore asset management fund, but plans to ramp this up by launching a domestic asset management business in the next few quarters. There were 38 asset management companies in India managing total assets worth Rs7.47 trillion by the end of March.
“Moving forward, securities will attain additional licences and expand out coverage footprint; investment banking will cover more accounts and asset management will role out their local business,” Entwistle said. “Over the long term, strategy for India involves us continuing to expand our footprint and coverage of clients. Along those lines, we plan to continue to significantly increase our headcount in India.”
Goldman’s main focus in India seems to be private equity. It recently picked up stakes in New Delhi-based Max India Ltd, which has interests in fields of healthcare, insurance and telecom, and infrastructure firm Asian Genco Pte Ltd, and raised its stake in wireless broadband operator Tikona Digital Networks Pvt. Ltd.
After a lull in the wake of the collapse of Lehman Brothers in September 2008, private equity deals have started to pick up in India. According to Venture Intelligence, which tracks private equity activity, between October 2009 and March 2010, private equity and venture capital investors announced investments worth $2.7 billion in 135 private firms in India.
Goldman Sachs is particularly interested in power and financial services. The bulk of its investments has been made in unlisted entities and the quantum varies between $10 million and $200 million. It is open to write much bigger cheques if the right opportunities come on its way.
The India investments are made from three different funds—its $20 billion global private equity fund, $7 billion GS Investment Partners (GSIP) and Goldman Sachs India’s own balance sheet. Roughly, about $750 million worth of investment has come from the global fund and another $750 million from its balance sheet and the rest from GSIP and other sources.
“Goldman Sachs in India is not a seller. We are investors for the long term,” Entwistle said.
The non-banking financial company that Goldman Sachs India bought in May 2008 has not built a big book as yet and is primarily involved in giving loans to its own clients, but the Wall Street firm sees a huge opportunity in the loan business and wants to set up its own commercial banking unit when the banking regulator gives its nod.
Apart from playing a critical role as a match-maker for the fraud-hit Satyam Computer Services Ltd—along with Avendus Capital—Goldman Sachs has also handled Telenor ASA’s $1.2 billion acquisition of a 67.25% stake in Unitech Wireless and TPG Capital’s sale of a 23.9% stake in Parkway Holdings to Fortis Healthcare Ltd for $686 million, the largest ever cross-border investment by an Indian firm in a healthcare company.
It is now handling two big public floats of power firms: the initial public offering (IPO) of the renewable energy company Orient Green Power Ltd, the first such in India by a green-energy company, and Jindal Power Ltd. It is also handling the sale of Standard Chartered Bank Plc’s Indian depository receipts.
The bank is also in continuous dialogue with the Indian government to play a role in its privatization programme. The government plans to raise Rs40,000 crore from the market by divesting its stake in public sector firms in the current fiscal. Last year, it had raised abut Rs24,000 crore through two IPOs and three follow-on offers.
While creating the building blocks, Entwistle, the longest serving country head of an American financial institution in India, is also busy creating a pool of talent that can handle the growing business. Goldman Sachs in India now employs 3,100 people, including 17 managing directors, some of them hand-picked from rival banks such as Bank of America-Merrill Lynch, Deutsche Bank, Morgan Stanley and UBS.