'2009 was a good year, next will be brighter'
Q&A: Vedika Bhandarkar, MD & Head of Investment Banking, J P Morgan
Abhineet Kumar & Sidhartha / Mumbai December 23, 2009, 0:36 IST
Investment banking shifted focus in 2009, as capital raising dominated over mergers and acquisitions (M&As) advisory. US-based J P Morgan led this shift globally. Vedika Bhandarkar, managing director & head of investment banking, tells how even in a supposedly bad year, banks raised about Rs 1,00,000 crore. In an interview, she tells Abhineet Kumar and Sidhartha that this signals hope for the advisory business to pick up in 2010, after a year when J P Morgan was missing from the top of the league table. Excerpts:
So, is it the end of a bad year?
No. A good year is now coming to an end. In 2008, things really slowed down. Till January-February (2009), the equity and debt capital markets were pretty much shut and only M&As announced earlier were concluded. So, 2008 was pretty weak. On the contrary, 2009 has been good. When we went into the calendar year, it did not look like it would be a good year. The first four months were quiet, but we have seen a spate of capital issuances since May. It started with deleveraging, but now we are seeing a little bit of growth capital. Things are not back to normal on the M&A front, but there are enough signs that the activity will pick up in 2010.
Despite a lot of growth in capital markets, bank lendings are growing slowly?
Bank borrowings always lag the recovery in capital markets. Companies in most sectors are optimistic about 2010. A lot of profit growth has come from cost reduction. Companies want sustainable growth for a couple of quarters before they start dusting out old expansion plans. We expect bank borrowings will pick up in the second half of 2010.
In the first quarter of 2008, there were certain public issues that drained out liquidity and forced others to shelve their plans. The next quarter will be a busy one with a large number of issues lined up. Do you again anticipate liquidity issues?
In 2008, the market was not affected because of a few issues. The global crisis had started and money stopped flowing in. Domestic liquidity also started getting tight. The amount of capital raised this year is just under $20 billion (around Rs 93,000 crore). In our best year, which was 2007, the capital raised was $35 billion. So, there is still a fair way to go. Global liquidity is quite high and the flow into equity and emerging market funds will continue. On the domestic side, insurance had a tough 2008, but the situation is better now. There are a lot of prospectuses that have been filed with the Securities and Exchange Board of India (Sebi), there are companies which have raised capital and will come back next year. Besides, there are very few mid-caps that have raised capital this year. There will be a lot of supply, but we are not sure if there will be enough demand for all the issues.
Will the government’s disinvestment programme crowd out private sector issues?
From the numbers announced so far, it does not look so. But if the government wants to bring 10 or 15 more issues, then may be.
How will rising valuations affect M&As, especially inbound deals?
Ideally, M&As should peak when valuations are low. But in practice, it is the other way round. That’s because companies, the buyers and the sellers, are not confident during tough times. Now companies in the US are shifting focus from survival to growth. People have started talking about M&As, which was not the case six months ago. But with strong equity markets, valuations have started emerging as a concern.
Where do you expect to see more activity?
In traditional sectors such as healthcare, information technology services, telecom and general manufacturing.
Are telecom companies getting desperate to expand overseas at a time when consolidation talks are gaining strength here?
There is no desperation. In India, Bharti got some good operating lessons in one of the lowest tariff environments. It has been looking out at markets with similar characteristics. Consolidation in the Indian telecom sector is a given, but we do not know if it will happen in the next 12, 24 or 36 months. Consolidation is bound to happen with tariffs falling and so many players.
The banking sector is also crowded and there is talk of consolidation…
It is completely linked to the government, which accounts for 70 per cent of the banking sector business. We are much more bullish on telecom consolidation happening sooner.
In terms of financing, will there be more of structured finance in coming days?
The market has come out of a major crisis. Right now vanilla financing seems good. Experimenting is on the margin. In private transactions, structuring is back, but not on the public side.On M&As, it was a bad year for the industry as a whole.
How would you rate it for J P Morgan?
The focus for the company this year was on equity fund raising, and we are ranked number one there (in the global league table). In terms of M&As, there have been very few large completed transactions in India. We closed the DoCoMo transaction earlier this year.
Wednesday, December 23, 2009
Thursday, December 17, 2009
Equity market harvest seen at new high
Equity market harvest seen at new high
Abhineet Kumar / Mumbai December 18, 2009, 0:26 IST
Companies plan to benefit from the high inflow of foreign funds.
The equity capital market is set to see its highest quarterly fund raising ever in January-March next year as public and private sector companies plan to tap investors to benefit from the high inflow of foreign funds.
The figure next quarter, according to Citi Global Markets, may be as high as Rs 70,000 crore, though the projections of fellow investment bank Kotak Mahindra Capital Company and research house Prime Database are more tempered at Rs 33,000 crore and Rs 30,000 crore, respectively.
The previous highest equity and equity-linked fund raising – initial public offers (IPOs), follow-on public offers (FPOs) and qualified institutional placements (QIPs) — in a quarter was Rs 26,123 crore in April-June 2007, according to Prime Database.
POSITIVE OUTLOOK
HIGHEST QUARTERLY FUND RAISING SO FAR
April-June 2007 Rs 26,123 crore
This year so far Rs 53,080 crore
ESTIMATES FOR JANUARY-MARCH 2010
Prime Data Base
Rs 30,000 crore
Kotak Mahindra Capital Company
Rs 33,000 crore
Citi Global Markets
Rs 70,000 crore
“The state of the secondary markets, the government’s resolve to speed up divestment at the right price, and timely approval of offer documents may lead to a record quarter in the Indian capital markets,” said Prithvi Haldea, Prime’s chairman and managing director.
Foreign institutional funds, which posted a net outflow of $3 billion in the first three months of 2009, saw net inflow of $17 billion in the following months as stimulus packages by governments around the world increased liquidity.
“We are in sweet spot today as capital is available to Indian companies across products, markets and formats,” said Ravi Kapoor, managing director and head of South Asia, Capital Markets Origination, at Citi Global Markets, explaining how abundant liquidity was helping companies raise capital at attractive interest rates through equity, equity-linked products, and local and international bonds. “Globally, stimulus packages may get phased out over a period of time which could impact liquidity,” he said, underlining the need for companies to assess their capital needs and plan raising of funds.
Citi Global Markets was involved in 23.9 per cent – more than anyone else — of the Rs 53,080 crore raised by Indian companies this year through IPOs and QIPs, according to data compiled by Bloomberg. The investment bank says a large amount of capital is planned to be raised by real estate and power generating companies. And there is also the Rs 25,000 crore that the Indian government plans to raise by selling equity in public sector units.?
“Given that interest rates overseas are likely to remain low and the dollar under pressure, foreign flows are expected to continue in our markets in the coming quarter,” said Kapoor.?
According to Prime, 60 companies have already filed applications with capital markets regulator the Securities and Exchange Board of India (SEBI) to raise Rs 40,000 crore through IPOs and FPOs. Another 100 have announced plans to raise Rs1,00,000 crore through QIPs. This will be spread over many months, but the next quarter may account for a large chunk of it.
“We are already witnessing multiple issuances in a week,” said S Ramesh, chief operating officer, Kotak Mahindra Capital Company, which advised Godrej Properties, JSW Energy and DB Corp for their IPOs of Rs 498 core, Rs 2,700 crore and Rs 385 crore – all three of which closed this week. He attributed his comparatively conservative estimate of Rs 33,000 crore to be raised in the next quarter to the fact that pricing was the key to large issues.
The issuance window in the domestic capital markets has been active since May this year. In spite of this, the secondary market has performed well. “Still, it would not rock the boat but have only a small impact on the secondary market,” said Ramesh.
This year funds were raised mostly to reduce debt on balance sheets. The fund raising in the near future, on the other hand, will be intended to raise growth capital.
Ends
Abhineet Kumar / Mumbai December 18, 2009, 0:26 IST
Companies plan to benefit from the high inflow of foreign funds.
The equity capital market is set to see its highest quarterly fund raising ever in January-March next year as public and private sector companies plan to tap investors to benefit from the high inflow of foreign funds.
The figure next quarter, according to Citi Global Markets, may be as high as Rs 70,000 crore, though the projections of fellow investment bank Kotak Mahindra Capital Company and research house Prime Database are more tempered at Rs 33,000 crore and Rs 30,000 crore, respectively.
The previous highest equity and equity-linked fund raising – initial public offers (IPOs), follow-on public offers (FPOs) and qualified institutional placements (QIPs) — in a quarter was Rs 26,123 crore in April-June 2007, according to Prime Database.
POSITIVE OUTLOOK
HIGHEST QUARTERLY FUND RAISING SO FAR
April-June 2007 Rs 26,123 crore
This year so far Rs 53,080 crore
ESTIMATES FOR JANUARY-MARCH 2010
Prime Data Base
Rs 30,000 crore
Kotak Mahindra Capital Company
Rs 33,000 crore
Citi Global Markets
Rs 70,000 crore
“The state of the secondary markets, the government’s resolve to speed up divestment at the right price, and timely approval of offer documents may lead to a record quarter in the Indian capital markets,” said Prithvi Haldea, Prime’s chairman and managing director.
Foreign institutional funds, which posted a net outflow of $3 billion in the first three months of 2009, saw net inflow of $17 billion in the following months as stimulus packages by governments around the world increased liquidity.
“We are in sweet spot today as capital is available to Indian companies across products, markets and formats,” said Ravi Kapoor, managing director and head of South Asia, Capital Markets Origination, at Citi Global Markets, explaining how abundant liquidity was helping companies raise capital at attractive interest rates through equity, equity-linked products, and local and international bonds. “Globally, stimulus packages may get phased out over a period of time which could impact liquidity,” he said, underlining the need for companies to assess their capital needs and plan raising of funds.
Citi Global Markets was involved in 23.9 per cent – more than anyone else — of the Rs 53,080 crore raised by Indian companies this year through IPOs and QIPs, according to data compiled by Bloomberg. The investment bank says a large amount of capital is planned to be raised by real estate and power generating companies. And there is also the Rs 25,000 crore that the Indian government plans to raise by selling equity in public sector units.?
“Given that interest rates overseas are likely to remain low and the dollar under pressure, foreign flows are expected to continue in our markets in the coming quarter,” said Kapoor.?
According to Prime, 60 companies have already filed applications with capital markets regulator the Securities and Exchange Board of India (SEBI) to raise Rs 40,000 crore through IPOs and FPOs. Another 100 have announced plans to raise Rs1,00,000 crore through QIPs. This will be spread over many months, but the next quarter may account for a large chunk of it.
“We are already witnessing multiple issuances in a week,” said S Ramesh, chief operating officer, Kotak Mahindra Capital Company, which advised Godrej Properties, JSW Energy and DB Corp for their IPOs of Rs 498 core, Rs 2,700 crore and Rs 385 crore – all three of which closed this week. He attributed his comparatively conservative estimate of Rs 33,000 crore to be raised in the next quarter to the fact that pricing was the key to large issues.
The issuance window in the domestic capital markets has been active since May this year. In spite of this, the secondary market has performed well. “Still, it would not rock the boat but have only a small impact on the secondary market,” said Ramesh.
This year funds were raised mostly to reduce debt on balance sheets. The fund raising in the near future, on the other hand, will be intended to raise growth capital.
Ends
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