Mumbai: Goldman Sachs Group Inc. continues to augment both its equity and debt capital market businesses as well as mergers and acquisitions (M&A) services to Indian companies for buying assets, a senior executive of the group said.
“Today, all the core businesses Goldman Sachs operates around the world are represented on the ground in India,” said Anshul Krishan, managing director of Goldman Sachs (India) Securities Pvt. Ltd, in an interview. “You will see us continue to further bolster our debt capital market activities in India.”
The firm does not arrange bank debt in quite the same manner as commercial banks do.
The American investment bank, which ended its partnership with Kotak Mahindra Capital Co. Ltd in 2007, shot up the deal-making league tables recently after it advised Reliance Industries Ltd on selling a 30% stake in 23 oil and gas exploration blocks to BP Plc for $7.2 billion (Rs.32,040 crore today). It’s also advising Cairn Energy Plc on the proposed sale of its 62%-owned India subsidiary to Vedanta Resources Plc.
One of the largest investment banks globally, Goldman has applied for a banking licence.
Both domestic and foreign banks are undercutting fees to make it to the deal league tables, and banks with large balance sheets make up with interest income by lending money to Indian companies to purchase overseas companies.
“This trend of balance sheet funding has come up with varying degrees of emphasis in different parts of the world at various points in time,” said Krishan. “It is important, however, to note that financing a strategic transaction, while a very important component, is not the only factor that helps see through a successful bid.”
“Credit per se has become more constrained and (with) capital becoming scarce, balance sheet is gaining importance,” said Joydeep Sengupta, a senior partner at McKinsey and Co. Asia, a global consulting firm. “This does not mean that firms with pure advisory will be left out. Boutique firms will continue to do business based on their relationships with clients, though absence of balance sheet will hurt their business.”
According to Dealogic Plc, an investment banking data provider, India-targeted mergers and acquisitions (M&As) reached $16.3 billion as of March 2011. “India cross-border volume totalled $13.7 billion in 2011, the third highest year-to-date level on record, behind 2010, which saw $16.1 billion worth of deals, and $26.4 billion in 2007,” Dealogic said in an 8 March note.
“Our endeavour is to be holistic in our advice and approach. While pursuing such (an) endeavour, we require to commit capital; we are there for our clients. But if in any given situation, the only meaningful offering we were bringing to the table was the use of the balance sheet, that would likely not be Goldman Sachs at its fullest and best,” said Krishan, who helped build the India business along with his country head L. Brooks Entwistle since 2007.
Last year, Goldman Sachs India hired Sonjoy Chatterjee, former executive director of ICICI Bank Ltd, India’s largest private sector lender, to co-head the Indian business with Goldman Sachs veteran Entwistle.
Chatterjee was made India boss in March, while Entwistle is on his way to relocate to Singapore as chairman and head of investment banking for South-East Asia.
Last month, Goldman Sachs purchased asset management company Benchmark Asset Management Co. Pvt. Ltd for Rs.120-130 crore.
According to Dealogic’s India league table for calendar year 2010, Goldman Sachs doesn’t feature in the top 20 banks by revenue earned.
Global Investment banks Barclays Capital, the investment banking business of Barclays Bank Plc, and Jefferies India Pvt. Ltd are in the process of setting up their equity capital market team in India. Others such as NM Rothschild and Sons (India) Pvt. Ltd are adding equity advisory.
The debt market is the biggest gap that investment banking players have to fill, said Saurabh Tripathi, partner, Boston Consulting Group, in his India Banking 2020 report. “The government and the regulators are working on it along with the players to develop this market.”
But there are challenges for the American bank in India when it comes to funding acquisitions.
“Due to various regulations, the use of listed Indian shares as acquisition currency is difficult,” said Krishan.
“At the same time, with most Indian companies being family owned, there is also greater dilution sensitivity when it comes to the use and issuance of equity. The reliance on balance sheets or external capital to fund these transactions becomes that much greater,” he added. “As regulatory frameworks and financing market trends continue to evolve, effective strategies for M&As must also continuously keep pace.”
The investment banking division, of which the financing group is a part, is looking at adding more people to a 19-member team.
“People are definitely a critical component to our business. It’s not simply about the size of a team, but just as much about the breadth of its skill sets,” Krishan said.
Deals India, published jointly by Mint, Dow Jones Newswires and The Wall Street Journal, is a one-stop destination for investment professionals following deal flow, deals news, private-equity and venture-capital activity in India.