Singapore: In 2010, when US-based investment bank Houlihan Lokey (HL) was looking to make strategic inroads into India and South-East Asia, there were many eager contenders trying to bag the partnership, including some major financial services providers.
HL, which has consistently been ranked No. 1 in merger and acquisition (M&A) transactions under $1 billion and also has the largest global restructuring practice, zeroed in, much to the surprise of many, on a new entity, Avista Advisory.
“Even though we were not a well known brand then, HL was keen on looking for a partner who could build a business along with them and were confident on what I brought to the table in terms of deep relationships and expertise across India and Asia," says Rajiv Kochhar, the energetic 49-year old founder and chief executive officer (CEO) of the Avista Advisory Group.
He adds: “I think we jointly worked on the key principle of how this partnership could be a win–win for both parties. The founders and partners at HL respected the fact that while they were a US-centric bank looking to get a foothold in India and South-East Asia, they understood that they were dealing with a partner who knows this region better than most, and took me seriously."
This confidence, backed by Kochhar’s extensive credentials and a network cultivated over 20 years paid off. HL made a significant advance into India with an equity investment in Avista. Avista is, as a result, HL’s exclusive partner for South Asia and the Association of South-East Asian Nations (Asean), and this arrangement is HL’s only such partnership globally.
Kochhar says he negotiated hard to get a good deal, but also made the necessary compromises to win the deal.
“While I gave HL 24% of the company at a great value, I was interested in what value I could create out of this partnership of the balance 76%. The soft dollars offered by my partners was extremely attractive for me," he says.
Asked to define what he meant, he says: “Securing Houlihan Lockey’s brand and expertise, and unparalleled global access for its Asian clients is what has made a big difference to Avista’s success."
He adds quickly: “This has been a mutually beneficial alliance for them, too, with HL having completed advisory transactions worth more than $5 billion in India alone."
In 2008, Kochhar made a strategic move from Mumbai to Singapore, with his wife and two sons, with a little more than a “can do" reputation in his field. He has built Avista—in a short span of time—into a high-quality, pan-Asian investment bank. And, along with the HL franchise and team, into one of the largest restructuring practices in India.
Avista today has close to 30 senior investment banking professionals and has closed transactions worth more than $3 billion.
With its strong domain knowledge and deep-rooted relationships, the team has advised clients on several landmark deals with remarkable success. These include Suzlon Energy Ltd, Dabur India Ltd, Accor SA, Sterling Biotech Ltd, Classic Stripes Pvt. Ltd and OPV Pharmaceutical Holdings Co., to name a few.
Kochhar started his career as a company man before becoming an entrepreneur.
In the 1980s, he worked for a boutique investment bank, 20th Century Finance, where he learnt the fundamentals of “how to manage and make money really well", he recalls with some satisfaction.
He then joined the Tata group, and was instrumental in its entry into investment banking at Tata Finance Ltd, which had traditionally been a truck and fleet financier. He built this into a successful enterprise, making it one of the market leaders within a span of three years.
“Working at Tata was a defining, invaluable experience," Kochhar says. “One line that stayed with me from its mission was: Find purpose and means will follow".
And he discovered that his purpose was to become an entrepreneur and make a big impact.
“I was ready to move away from the cushy, secure life of Tata and make it on my own," he recalls. “I wanted to build something concrete and do things that others can’t or won’t."
He notes with some pride that in the late 1990s and early 2000s, 90% of investment bankers who left their jobs to become entrepreneurs ultimately went back to working as employees. Kochhar says that while he faced some “very difficult times", the thought of going back and working for someone never crossed his mind again once he left Tata.
Reflecting on what gave him staying power, he answers somewhat surprisingly: “I think I could endure the pain and risk attached with being an entrepreneur in some part due to playing squash competitively at the national level and being at the very top."
He adds: “In sports, as in business, all is not lost, or won, till the last point. I had been prepared well in life to fight and persevere."
Kochhar actively shuns the stereotype of a brash investment banker. And though he comes across as supremely confident and ambitious, he is innately modest, and secure about the unique space he occupies professionally.
“At my level, everyone is trying to outdo the other at all costs," he says. “This is ultimately self-destructive and negative for businesses and society at large, as it leads to moral decay and rupture within oneself. This DNA is what led to the financial crisis."
He adds: “Of course, you have to be hungry as an investment banker, you have to hustle to create wealth, but you have to also know your limits, and most critically have a bigger goal for creating wealth."
He cites leaders like Ratan Tata and Azim Premji as people he admires and whose footsteps he would like to follow “as they relentlessly chased profits but were also equally ambitious about giving back".
Asked about his vision for Avista Houlihan Lokey for the next five years, he says: “While I would love to be ranked in the top five investment banks in the region, I also want to be remembered equally as a brand which spells ‘quality.’"
Edited excerpts from an interview:
Please give an example of one of your most complex and successful deals done to date?
We did a $547 million foreign currency convertible bond restructuring recently of Suzlon Energy, a leading global supplier of wind turbine generators that operates in 33 countries and was facing a big crisis. As a result of the industry downturn, capital market headwinds, and limited liquidity, the company was unable to achieve its operating plan and was forced to restructure its capital structure, including over $2.3 billion in bank debt and $547 million in foreign currency convertible bonds (FCCBs) spread across four series.
In December 2012, Avista HL was appointed as the exclusive financial adviser and we successfully structured and negotiated a cash-less restructuring of Suzlon Energy’s FCCBs of face value $485 million ($547 million including redemption premium) for five years. The bonds will mature in 2019. The conversion price is set at ₹ 15.46 a share, being 10% over the regulatory floor price. The new bonds will have a coupon rate that will step up over the five years, and the yield will average out to approximately 5%.
What are the three key market trends impacting your business in India and Asia?
First trend is sponsor exits. In the last 10 years, more than $85 billion of private equity (PE) money has got invested in India, but only $30 billion has been returned. We expect more exits to happen, now that both financial performance and valuation benchmarks are improving.
Second, outbound acquisition: we see significant dialogue with corporates around overseas targets, which could give them access to growth markets and technology. This trend is being seen across the Indian and South-East Asian markets. Also, there is enough liquidity and capital available for quality corporates to access the markets to fund these acquisitions.
The third trend is restructuring: so far, this market had been limited to restructuring of traded securities such as FCCBs, but with RBI (Reserve Bank of India) becoming more and more cautious about the asset quality in various banks, we see a gradual evolution of the market for restructuring products. This is going to be a slow process, but one which is critical to a smoother flow of balance sheet for the banks, and an area where we have global expertise, having led 12 of 15 largest restructuring transactions globally.
What are the biggest opportunities you are preparing yourself for in the next two years?
With the capex cycle turning and the corporate balance sheet getting realigned and stronger, we see opportunities across our geographies of corporates starting to look outside to find the right M&A target as well as a number of sponsors starting to have active discussions around exits through control sale. Hence, we plan to play a major role in both ends of the spectrum, thanks to our award-winning, leading global franchise and expertise and experience across geographies in executing these transactions.
With our expertise across debt, structured finance and equities, we see huge opportunities in raising financing for these corporates for their M&A or growth capital needs or special situation financing in case of companies in distress or restructuring.
What significant challenges do you face today?
Volatile currency movements in Indian and Asian currencies always make transactions more difficult. Sudden movement of capital into or out of India can also make valuation discussions tricky in an M&A situation. Lastly, a stable government policy regime is required across countries like India, Indonesia and Malaysia for an active M&A/capital market to develop and grow.
How do you see the future of boutique advisory firms in India?
In the developed world, boutique banks play a significant role in the investment banking market due to their independent advisory capability and no-conflict status. India has traditionally seen a number of bulge-bracket banks vying for clients’ attention, but barring a couple of firms, we haven’t seen much presence of boutique banks in India. At Avista Houlihan Lokey, we see a large opportunity in helping our client-base with our global network and resource base.
What are your growth plans?
We have just kick-started Avista Asset Management, which is focusing on real estate asset management in South-East Asia and India and have a new managing partner and CEO running that business.
This business will be extremely useful for our investment banking advisory business with specialization in real estate, which we see as a very high growth segment across our geographies.
Also, just this month, Siddharth Suri and Subodh Gupta—who bring significant banking expertise from blue chip investment banks—have joined the Avista Houlihan Lokey franchise as directors, focusing on debt advisory and M&A advisory, respectively.
We continue to add quality professionals to the team in Singapore as well. We are extremely pleased that Sui Ling Cheah, a very senior and respected banker in the South-East Asia region has joined us as a vice-chairman.
Indian entrepreneurs are working hard to succeed and scale up globally. What lessons do you have to offer them from Avista’s growth experience?
First, it is very important to build a team which believes in the founder’s vision and can help execute it. At the same time, high-quality professionals need the required space to grow and create their own name under the sun which the firm needs to provide them. They should also have some skin in the game and have equity in the business. The plain vanilla model of salary and performance bonus does not give them the sense of ownership. This is the model that Avista would like to build itself on in the near future .
Second, there needs to be a focus on bringing in the best and high-quality business.
Third, build a platform which allows the team to grow and perform better. The partnership with Houlihan Lokey gives my team, for example, the industry and product knowledge, as well as access to global investors to execute significant cross border M&A, capital markets and restructuring transactions.
Lastly, it is imperative in this competitive environment to create a friendly culture within the organization and spend money on “building quality within" which we are doing by spending big dollars on training, systems, processes and building quality infrastructure.