Mumbai: With a team of about 20 investment bankers, Rothschild and Co. has managed to be part of over 200 deals ranging from one of India's biggest in the oil and gas sector to automobiles and renewable energy, in 2016 alone. In an interview, Alexandre de Rothschild, deputy head of Rothschild Merchant Banking talks about working in India, dealing with the uncertainties here and tapping the true opportunities. Rothschild talks about why his bank will continue being an adviser in investment banking deals and other parts of the world that show promise. Edited excerpts:
What is the kind of opportunity you see in India?
Clearly, what you can sense here is a fantastic business momentum at the moment. Last time I was here, a few years ago, you could sense the same level of attraction from outside of India, but the perception was that the country is less organized than it is today to welcome flows of investment outside of India.
Any country which grows rapidly comes with its own challenges and India has its challenges at the moment. But you can see that the trend is one which is extremely positive and where ambition of the government and business community tends to get aligned, which in our business, makes things little bit more easy.
As far as we are concerned, 2016 has been a fantastic year, advising on more than 230 transactions. We work for corporates, private equity houses, we have been involved in government-related situations. We have roughly 20 bankers, but the India business is extremely strategic for the rest of the group.
We have deals in renewable energy, oil and gas, automobiles, pharmaceuticals, finance. There is a big range, we are not dependent on one successful industry. Quite a lot of it is cross-border and therefore, we use a lot of Rothschild’s network, we have offices across 40 plus countries and all of them are looking for acquisitions in their own sectors.
Are you saying the present government is very focused on seeing business as solutions, which was not the case five years ago?
I think the rhetoric changed with the new government which always helped people, and I think that (at) the end of the UPA government, there was a slight sense of lack of energy. A new government came in. Slogans like less government more governance started trending. Slogans are slogans, but they, to a degree, do convey a message to the people.
You are one of the very few true independent investment bankers. How do you see this business growing?
Post the financial crisis, our model of being independent advisors has come out as a winning model. We have a number of competitors who also purely advise. We used to have to explain our model in a slightly defensive manner. We would have to explain things like we won’t trade your secrets somewhere else. Today, clients are convinced about the value-add of advice. You tend to see a lag between more mature markets who have already appreciated that and places like India. We will continue to do advisory. In advisory, we refine our expertise.
What do you infer from the happenings at large corporate houses such as Tata and Infosys, when it comes to corporate governance? How do foreign investors view this?
Obviously, people are extremely interested as soon as the perception that something is going wrong in a big group arises. It’s quite natural when large businesses are going through (a) change in management. Succession comes with a need to modernize the governance to reflect which era we live in. Five years ago, Airbnb didn’t exist. Today, it is the largest hotel company in the world without having any physical hotels. That should give a sense to traditional businesses that there is almost a revolution happening around us. These are extremely professional companies you mentioned in your question. There might be short-term turmoil, but over time, we are confident that they will do the right thing.
Public markets tend to have a reaction which is immediate and that can create some volatility. People who are there for the long term have the ability to judge what the right thing to do is. It is too early to judge from outside.
We are seeing a phase of consolidation in sectors such as telecom and banking. In emerging nations like India, how much does consolidation help?
I think in telecom companies, there are some developed global models now. There is reasonable assumption of a move towards consolidation in that environment. It will probably mean overall service levels go up. In banking, scope is there for consolidation because there are so many banks. It is financially complicated for the regulator to have so many banks and in some cases, service being provided is less good. It is a desirable direction to travel in.
What are the challenges out here?
Like most places which experience a high level of growth, it is always correlated with some level of risk, 7-8% may be more, that needs to be absorbed in (the) right manner. There are some execution risks along the way. The impression I am getting is quite superficial, but there is a slight impression that the health of the economy and the general health of the banking system where non-performing assets (NPAs) are not at a sustainable level. Should consolidation address part of that to improve the banking system? It will be a very good outcome.
Apart from India, is there any other market that looks promising at this point of time?
We are present in more than 40 countries, we completely believe we have a global footprint. Africa is, of course, a major continent of huge opportunity where picking the right pattern, right people, having (the) right strategy is something, not an easy answer to a difficult question.
You have a lot of exogenous factors in Africa, currency movements can be very drastic, macro-political changes which can sort of change the landscape quite rapidly. We would prefer to advise clients to look at pan-African business as opposed to making a mono bet into one country. Having (an) approach which is diversified within Africa is preferred.