In the cross-border acquisitions Indian companies have made this year, Swiss investment bank UBS has been generally advising the sellers.
Manisha Girotra, UBS India's managing director and country head, notes they've also advised Reliance Industries in its two latest US energy acquisitions.
In an interview with Abhineet Kumar, she talks about the changed mindset of Indian promoters, and the impact of the new takeover code rules. Edited excerpts:
For long, the Indian promoter was considered emotional about his business. Is there a distinct change you see in the recent deals, such as a JSW selling to JFE and Fortis quitting Parkway?
The Indian promoter has the desire to become global, make the company a global giant, make the business resilient, across countries.
It's also a very commercial approach. Therefore, in the Parkway deal, at some level it made sense for the Singhs to walk away.
They did exactly that, due to the commercial parameters they had set, and for the desire to become very competitive.
Therefore, yes, there is a distinct change in the mindset now. It is not obsessive about the 51 per cent threshold, it is obsessive about dominating in market share and making sure the company is resilient across generations.
In 2007, you did the largest deals of the year, advising Hindalco for the Novelis acquisition, Vodafone for acquiring Hutch's stake in Hutch Essar, and Essar for acquiring Algoma. Now, UBS is lagging at number six in the mergers and acquisitions league table. Why?
We have done lot of these sell-side mandates. Our expertise has been that we use our India office to market clients globally.
We have tried to market our product and services to multinationals and try to bring them to India. It worked very well for us. So, you will see the trend continue.
Of course, we also like to work with Indian companies. We advised Essar on Algoma and Hindalco on Novelis. So, we like to do a mix of both. And, last year, cross-border M&A really slowed.
The last 18 months were slow. It will pick up and you will see our activity pick up, too.
Our objective is to capture market share from the global companies, as well as the Indian companies. In the Bharti-Zain deal, we worked with Zain. We worked with the Birlas in the Ultratech merger, so we do both.
How do you seen the pipeline for large deals of over $500 million?
Nowhere close to what it was in 2007-2008, but fairly significant. There are a lot of companies looking at buying assets in emerging markets, because there is so much growth in these markets.
There are some Indian companies looking to acquire companies in the US and Europe for technology. So, a bit of both. But in terms of scale, the likes of Bharti-Zain, there aren't too many of those happening.
But there are regular ongoing dialogues with companies across sectors from metal and mining to health care to telecom. Dialogue is across the sectors.
In pharma, it has almost become a trend that Indian promoters are selling their companies to foreign players. If the Indian market is so attractive for foreign players, why can't Indian promoters put up a fight?
It really goes back to the first point: are you going to be emotional about your business or are you going to run it with a commercial head?
To take on a market as big as India, you need a very deep pocket. To achieve that, if one has to sell out his shareholding, so be it. It is taking the emotional hat off and doing what is best for the business. Or, sell out completely; that has been the case with two.
The new guidelines for the takeover code requires open offer for 100 per cent of the shareholding. Doesn't it favour MNCs with deep pockets?
It is not MNCs versus Indian companies. Indian companies also have very deep pockets, especially the large ones. It is basically about protection of minority shareholders.
Now, Indian promoters can have enough access to leverage, banks are supporting aggressively on acquisitions. Acquisition financing is a strong cell with every public sector bank.
If you have a good enough target, most of the investors anyway choose to stay on. It is not really that all of them come in and tender.
In the capital market, what kind of fund raising do you see this year?
Last year, the funds were being raised to de-leverage the balance sheet.
This year, we have already seen about $18 billion of capital being raised and a lot of it is for capital expenditure and expansion. Because, last year, people slowed their expansion. Therefore, their capital expenditure had really slowed.
This year, new companies are coming in through IPOs. We saw SKS Microfinance, cable company Hathway coming in, some real estate companies coming in.
The balance sheet issues have been sorted out. The de-leveraging of balance sheet through infusion of equity has already happened.
You also advised Himadri Chemicals this year in their PE transaction with Bain Capital. What kind of PE activity do you expect in the near future?
Fairly aggressive. They look at India as a growth market; it took some time to make the market learn about private equity. Indian promoters were generally cautious.
I think the experience has been very good, right from the deal of Warbug Pincus with Bharti Airtel.
It is a phenomenon and trend that is going to stay and you will see it growing bigger and bigger. They are so aggressive at this point.
The problem is that they always compete with public capital because in India, companies do an IPO at a very early stage. So, that's a challenge that always remains. But I think they are managing to find the deals to do.
New guidelines for the takeover code have increased the threshold for an open offer to 25 per cent from 15 per cent earlier. Is it going to accelerate investment from global private equity players and foreign institutional investors?
We are anyway seeing an accelerated activity. The way India is shaping, yes, amendments like these always help, but structurally, India is becoming so attractive.
In this whole India versus China debate, India is coming out on top for a lot of investors.
On China, there is debate. Investors are thinking if they should really be looking a little harder, if they are too over-invested, etc, while India is not looking like that.
There is a lot of appetite anyway, because people see this is as the place to be over the next 15-20 years. Eight per cent (annual) gros domestic product growth, demographics are looking good, the government is looking focused on infrastructure spending.
Speak to any PE guy, any international investor. I see a step-up, especially in the past few months, in their appetite for India.
When I see step-up, I don't just mean the number of deals but also mean in terms of the size of investment.
Buyout deals have not been actually happening in India. Do you think the new de-listing guidelines under the open offer route would be a booster?
Enormous. That was a big issue when anyone would look at buying out companies. The large multinationals that we speak to regularly, the big issue is that they cannot de-list easily. And, all multinationals want to consolidate.
These de-listing norms will go a long way. This will be a big deal breaker for all the multinationals we present to. De-listing in India is very tough, so these new guidelines should go a very long way.
Image: Manisha Girotra. | Photograph: Reuters