UBS India chief Anuj Kapoor.
UBS India chief Anuj Kapoor.

UBS sees non-banking financial companies lining up for IPOs in 2018

UBS expects both the IPO and the QIP market to remain robust in 2018, with the banking and financial services sector continuing to lead the activity

Mumbai: European financial services firm UBS AG expects its Indian investment banking business to become a bigger part of its global franchise due to stronger equity capital markets and merger and acquisition (M&A) activity, senior executives said at a media roundtable on Friday.

Earlier this year, UBS hired Anuj Kapoor from Barclays to head its India investment banking unit, which has seen an eventful 2017 and expects to do more in the coming year.

“Our two larger businesses are in China and India, so they are full markets for us. We see a very great future in India and we hope it to become a bigger part of our business. We see India going forward and will become even more active in terms of capital coming in and out. A lot of our global clients are thinking of coming into India and, at the same time, Indian companies are planning to go out," said David Chin, managing director and head of corporate client solutions for UBS Asia Pacific.

Asia contributes close to 30% of revenues for UBS, he said.

New economy businesses and a rising middle class have been a strong attraction for investors looking at India.

Sectors such as renewable energy too have seen strong activity.

“In terms of new economy, India is capturing global attention, whether it’s consumer services for the middle class or otherwise. Given the size of the population and a rising middle class, I think the whole new economy would become important in the next few years. The renewable sector and energy space will remain an important part of our business transactions," Chin added.

Equity capital markets have been an active space for UBS in 2017, with the bank acting as a bookrunner for the block trade where Qatar Foundation, a non-profit run by the gas-rich country’s royal family, sold its entire 5% stake in India’s largest telecom operator Bharti Airtel for about Rs9,600 crore.

Initial public offerings (IPO), qualified institutional placements (QIPs) and large block trades are key focus areas for the investment bank.

“As far as IPOs are concerned... 2017 was the busiest year. If the markets stay where they are, which hopefully they will, 2018 should be beating this year comfortably. All depends on the market which is difficult to predict but the general trend is positive. 2019 (general election) is a big event," said Kapoor, managing director and head of investment banking at UBS India.

UBS was one of the merchant banks for the Rs8,695-crore HDFC Standard Life Insurance Co. Ltd IPO in November.

UBS expects both the IPO and the QIP market to remain robust in the coming year, with the banking and financial services sector continuing to lead the activity.

“People are excited about IPOs, given the higher valuations. We will see one-third of QIPs in the financial sector next year. We will see lot of non-banking financial institutions (NBFCs) go for IPO next year; banks have already started going," said Kapoor.

Kapoor added that India offers a robust market for financial sponsors (private equity funds) who are looking for exits to recycle capital and returning profits to their investors.

“The view of sponsors in India is positive. There are four sectors where 60-70% of the sponsors would want to focus which include technology, financial services, healthcare and industrial and business services at large. Some sponsors do focus on consumer and retail segment. That’s going to be an overarching theme as far as merger and acquisition activity is concerned," he added.

M&A activity in several sectors is expected to be driven by the Insolvency and Bankruptcy Code-led debt resolution processes, said Kapoor.

“There’s a lot of fatigue among Indian strategics. There is so much distress in some of the hardcore brick-and-mortar driven sectors. M&A activity in some sectors is going to be driven by restructuring through bankruptcy laws, (and) also through some domestic consolidation," he said.