Mumbai: Religare Capital Markets Ltd, owned by billionaire brothers Malvinder and Shivinder Singh, plans to buy two brokerages in Nigeria and South Africa to increase access to foreign institutional investors.
Even though setting up overseas brokerages is expensive, the company’s strategy is to gain access to institutions and then “sell” deals, Religare Capital chief executive Tarun Kataria said in an interview.
Last year, the company extended its presence to several countries. It bought the UK and the US operations of South African brokerage Barnard Jacobs Mellet Holdings Ltd, a 50% stake in Sri Lanka-based Bartleet Mallory Stockbrokers Pvt. Ltd, and Central Joint Enterprises, a Singapore-based research firm with a branch in Hong Kong.
With global investment banks building their network in India, domestic investment banks have been losing business. To overcome the challenge, local investment banks such as SBI Capital Markets Ltd, Kotak Capital, IDBI Capital Market Services Ltd, JM Financial and Axis Bank Ltd are looking at merchant banking licences overseas.
But unlike other home-grown investment banks, Religare Capital chose to grow its global presence before building a strong presence in India, which industry experts say is a risky model.
Religare Capital has offices in nine countries and will soon set up a joint venture in Indonesia for similar institutional access. The nine countries it has chosen, Kataria said, are places where it expects the emerging market story to play out. Overseas acquisitions have given the company access to 500 overseas institutional investors.
“In emerging markets, being a foreign firm, it is critical to get right talent to drive the business,” said a senior official from a multinational strategic consulting company. “The risk that the company runs is that it is heavily people dependent, and this is a very high risk.” He declined to be named as his company’s policy does not allow executives to speak on clients to reporters.
Kataria, who built Religare’s investment banking business from scratch, doesn’t agree. “At a time, when domestic investment banks are under severe revenue and cost pressures and there is no competitive differentiation, ours is a unique model,” he said. “We have the highest calibre people that can and will deliver exceptional execution.”
Religare has 34 bankers in India, many of them hired from UBS Securities India Pvt. Ltd and Goldman Sachs India.
Religare Capital’s expense on employees for the financial year ended 31 March jumped more than fourfold to Rs 106.6 crore in India and almost threefold to Rs 342.2 crore overseas. The company reported a loss of Rs 46.4 crore in the last fiscal year. Moreover, most of the investment bank’s clients have been its group companies, including the Fortis Healthcare acquisition of Wockhardt Hospitals and Parkway Holdings in Singapore.
Religare Capital doesn’t go for a mandate that pays less than 2% fee even if it means walking away from deals, said Kataria, who joined the bank in 2010 from HSBC Holdings Plc.
The volume of equity deals in India has almost halved to $7.66 billion in January-May this year compared with $15.29 billion in the same period last year, according to researcher Dealogic Plc.
The volume of debt deals has also dropped 17% to $17.16 billion, while the volume of mergers and acquisitions slid 1.8%. India’s core investment banking revenue has reached $271 million so far this year, down 24% from $368 million in the same period in 2010.
But the overall market decline doesn’t bother Kataria. Religare Capital has a mandate from Indian companies to raise $1.2 billion from Indian and London share markets and mandates from both Indian and foreign companies to buy Indian and overseas assets worth $8 billion, he said. The bank also has licences to underwrite on the Indian and London stock exchanges and has applied for permission from the Hong Kong and Singapore exchanges. Underwriting is one of the significant revenue generators for an investment bank that has an equity business.
“Institutional equities market is not as crowded as retail but it’s an opportunity when there are volumes,” said Ravi Trivedi, executive director of insurance, pensions, mutual funds and financial services at global consultancy KPMG India Pvt. Ltd.
Indian promoters have to necessarily mandate foreign investment banks to ensure that overseas investors participate in their share issuances, said Kataria. A domestic bank with relationship with overseas investors gives us that advantage, he said.
“While it is good to have international presence, where you can manage assets directly from the key markets, it is very important that these investment banks don’t get carried away by the local presence and accumulate risk,” said a senior consultant working with a consulting company, who asked not to be named.
According to him, with Indian companies trying to exploit investment opportunities globally, there will be businesses coming to such firms. “In the next 10 years, not only will the amount of capital outflow will be as much as inflow into the country. This will be driven by Indian entrepreneurs’ zest to multiply their risk return on capital deployed by them.”
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.