Mumbai: JM is holidaying abroad and he asked you to call in the second week of January,” said an executive at Actis Advisers Pvt. Ltd last week, returning calls made to J.M. Trivedi, head of South Asia at the private equity firm. “I am on leave and will be back in office on Friday, 7th January 2011,” reads the out-of-office reply from his email address.
Trivedi deserves the holiday he is enjoying at an undisclosed location. He signed off the year in style, selling his fund’s 63% stake in Paras Pharmaceuticals Ltd for an estimated $456 million (Rs2,057 crore), making three times the original investment of $145 million in 2006.
Trivedi was not the only Indian deal maker holidaying on foreign shores as the year drew to a close. Ashok Wadhwa, the top man at Ambit Corporate Finance Pvt. Ltd, said he is in Singapore. Kaustubh Kulkarni, vice-president of investment banking, JP Morgan India Pvt. Ltd; Shailendra Ghaste, managing director, IDFC Capital Ltd; Sanjay Sharma, head of equity capital markets at Deutsche Bank AG’s India unit; and the entire Citibank India top brass are overseas.
The spring in the step comes from the ring in the deal counter. Foreign holidays—a distant dream for bankers in 2008 and rare in 2009—are back in fashion as the Street pays hefty bonuses to its deal makers. Travel firms say they have seen business shoot up by 20% this season.
Some Wall Street bankers are getting zero bonuses this year as the US economy still struggles, but their Dalal Street cousins are receiving bonuses running into eight digits (crores of rupees). Foreign investment banks such as JP Morgan, Deutsche Bank, Barclays Bank Plc, Standard Chartered Plc and Goldman Sachs Group Inc. are in the process of handing generous bonuses to executives after a year of record deals.
Private equity (PE) funds usually operate on 2:20 basis; while 2% is charged as management fee on money raised, they get a 20% carry, or the cut on profits made on exits.
Payouts to middle-level bankers on the debt side are in the range of Rs2-3 crore, as even here money raising has been brisk. Dealogic data shows a 32% increase in debt market deals in 2010.
Mergers and acquisitions (M&A) and PE deals are far more lucrative for bankers and rewards are directly proportional to the size of deals.
Consulting firms in financial services say the fixed component of salaries of top management officials in the advisory space varies from $200,000 to $500,000 a year. The average bonus would be 30-40% of the fixed pay, but could go up to 100% depending on the deal size and the role played by the banker. In some cases, it has gone up to 300%.
Nishchae Suri, managing director, Mercer Consulting India Pvt. Ltd, says executives in the advisory space of the BFSI (banking, financial services and insurance) segment have been the biggest winners this year.
“For the people engaged in advisory roles in the M&A, ECM (equity capital markets), project management, capital restructuring spaces it has been one of the best years,” he said. “Last year was disastrous. There was a rebalancing in the target payout last year and the aggressiveness reduced. But the achievement of target has been higher than expected and that’s why bonuses have been particularly good this year.”
Suri said banks such as StanChart and Citibank have had a very good year while some smaller banks suffered.
“The markets have been healthy and bonuses are expected to be double of what people got in 2009,” said Siddarth Raisurana, executive director, ABC Consultants. “The deals in both PE and M&A space have been by far the largest. People have retained talent last year and the deals have also happened. So, the payouts will be generous.”
Raisurana said multinational companies announce bonuses in January and pay by February, while local investment banks follow the fiscal year.
“Middle-level people in debt capital markets are getting packages of around a million dollars,” said an investment banker, who didn’t want to be named. “Of these, between $600,000-800,000 will be in bonuses. For people in M&A, this will be even higher, depending on the deals they work on.”
In terms of deal making, 2010 has been by far the best year for Indian companies. Bharti Airtel Ltd’s $10.7 billion acquisition of the African assets of Zain Telecom led the table of 1,483 deals announced by Indian companies in 2010, according to Dealogic. Valued at $92 billion, these topped 2007, when 1,575 deals worth $75 billion were announced.
“Capital raising activity is healthy, liquidity is ample and growth is back. Risks have been better factored in,” says Abhay Bhalerao, director, Equirius Capital, a boutique investment bank. “This year was definitely better than last year and the next year is more promising.”
An executive at Deutsche Bank, which brokered a $20 billion deal for ONGC Videsh Ltd in Venezuela, describes 2010 as a “fantastic year”.
“We got to lead a handful of blockbuster deals in the M&A and ECM space during the year,” he said. “Out of 16 bond issues this year, we handled 13. So, it has been a particularly good year at Deutsche.”
With most of the northern hemisphere (US, Europe, etc.) snowed out and Goa sold out, Australia, New Zealand, Egypt and Mauritius have emerged the most favoured holiday destinations of Indian bankers.
Ashwini Kakkar, executive vice-chairman at Mercury Travels and an industry veteran who was once chief executive and managing director at Thomas Cook (India) Ltd, said business in the New Year holiday season has gone up by 15-20% over the previous year.
“Indian bourses had some nice numbers resulting in at least 30% return on investment for investors. Also, commercial and investment bankers have got handsome pay packets due to increase in mergers and acquisitions in India. Now they want to spend quality time with their family in relatively new destinations,” he said.
“In the past, these bankers used to prefer destinations such as Singapore, Hong Kong and Malaysia. Now, they are increasingly opting (for) Turkey and Egypt.”
P.R. Sanjai contributed to this story.