Opportunity for Indian banks to buy assets

Opportunity for Indian banks to buy assets
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First Published: Mon, Mar 17 2008. 11 11 PM IST

Tracking trends: Richard Heald, partner and managing director NM Rothschild & Sons Ltd.(Photo: Abhijit Bhatlekar/ Mint)
Tracking trends: Richard Heald, partner and managing director NM Rothschild & Sons Ltd.(Photo: Abhijit Bhatlekar/ Mint)
Updated: Mon, Mar 17 2008. 11 11 PM IST
Mumbai: Indian banks have been prudent compared with the “excesses” of certain foreign banks, says Richard Heald, partner and managing director of NM Rothschild and Sons Ltd, the world’s largest closely held investment bank, which offers advisory services to governments and corporations. In an exclusive interview with Mint, Heald says Indian banks now have an opportunity to buy assets overseas. He also sees a consolidation in some Indian industries such as software that are exposed to the US dollar. Edited excerpts:
Is the fallout from sub-prime mortgage-related losses becoming the biggest financial crisis ever in history?
Tracking trends: Richard Heald, partner and managing director NM Rothschild & Sons Ltd.(Photo: Abhijit Bhatlekar/ Mint)
This is the worst cycle we have seen in the financial markets for a long time. There will not be stabilization (in debt and equity markets) until the full quantum of losses are understood. We are now in a dangerous situation, where investors are reacting to markets rumours. Typically, it (the markets) will rebound at a time when least expected.
Bear Stearns Companies Inc. was taken over by JPMorgan Chase and Co. for 1% of the value it commanded two weeks ago. Will mounting losses lead to more such consolidation in the financial services sector?
The Bear Stearns situation was not a planned acquisition, which can be described as strategic. One can wish other firms do not face (this fate). There could be more such consolidation considering the current dynamics.
Does this provide a large acquisition opportunity for Indian banks that are aggressive on overseas growth? Can you predict any other M&A trends involving Indian companies?
Indian banks have been prudent compared to the excesses of certain foreign banks. There is clearly an opportunity for Indian banks to acquire assets that could fit well with their strategy. There are a number of opportunities in Europe and elsewhere.
Of course, the differential in corporate valuations (justified by earnings growth) will help Indian companies (in outbound deals), subject to the availability of deft financing and, to a certain extent, the equity take-out. Within India, there could be consolidation in those industries exposed to the US dollar. In the software industry, for instance, consolidation opportunities could exist among mid-sized firms.
The valuations of big global brokerages have fallen substantially. Is this an opportune time for Rothschild to acquire the equity capital market operations of an established global firm?
(Rothschild is yet to announce new partnership or an independent equity capital markets, or ECM, division after its decade-old joint venture with ABN Amro ended in December.) There is definitely an opportunity for certain type of investors. But, frankly, I think it is inconceivable that Rothschild will look to acquire a firm to get a direct footprint in the brokerage industry.
Yes, we had a minority stake (26%) in Smith New Court Plc. (then UK’s largest independent brokerage), which we sold to Merrill Lynch and Co. (in 1995, as part of a $839.7 million {Rs3,426 crore} buyout deal by Merrill).
Are those employees assigned by Rothschild to the joint venture with ABN now back in the firm? Will these employees form a new ECM division of Rothschild?
All the employees assigned by Rothschild to the ECM joint venture were taken back (into Rothschild). Rothschild in India does not underwrite equities. However, we offer a full and independent ECM advisory offering leveraging off our existing skills within the group. For instance, if an Indian company is looking for a London-listing, we will use the ECM advisory capabilities of my colleagues in London, coupled with the corporate finance sector expertise of our Indian team. Equally, if an Indian company was looking at a Singapore listing, we would use the ECM advisory skills in Hong Kong alongside Rothschild India.
At the time of the dissolution of the joint venture, we did not have formal ECM operations in India. The Indian equity underwritings were done in the name of ABN Amro Securities India Pvt. Ltd. It was branded ABN Amro Rothschild for marketing purposes.
What will be your focus areas in the advisory business in India?
Rothschild India is putting a lot of effort into the Indian midcap sector. These firms usually do not fall under the client category of large foreign advisory firms. Private equity interest is very high in this segment of the market.
Rothschild has one of the largest debt advisory teams among the investment banks across the world. We have people focussing on debt advisory in India and London-based principals have been visiting India regularly over the past 18 months. Debt advisory is a core part of our global IB advisory franchise.
Are declining stock valuations a windfall opportunity for private equity firms?
During this period, there will be more PIPE (private investment in public equity) transactions happening globally. We expect to see increased private equity transactions happening in India as well.
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First Published: Mon, Mar 17 2008. 11 11 PM IST