'Corporate houses prefer pure advice'

Q&A: Sanjay Bhandarkar

Europe-based N M Rothschild & Sons, the only unlisted top-rung global investment bank, entered India in the late 1990s. Many of its competitors exited the country during this time following the dotcom bust and resultant slowdown. Rothschild prides itself as a pure advisory company.

It has been involved in some high-profile deals such as restructuring of the Dabhol project, and most recently, advisors to the Tatas in its acquisition of Corus. Sanjay Bhandarkar, the low-profile managing director of Rothschild India, explains to Reena Zachariah and Rajesh Abraham that corporate houses in India are increasingly realising the value of pure advice, as against finance-cum-advice provided by other global i-banks.

You have been one of the early entrants into the Indian market. How much have things changed from then?

Rothschild is basically a pure corporate finance advisory company. There are some things that distinguish us from the rest of the investment banking fraternity. Firstly, we are the only global privately-owned company in the investment banking world. We are still owned by the Rothschild family, which has been around for 200 years. So I think that makes us a bit different.

Secondly, we only provide advice. We don't lend nor do we invest. Our bread and butter are driven by the quality of advice that we provide. Clients come to us for advice and not because we have huge propriety capital, and to that extent we are focused. And thirdly, we typically tend to have senior guys on transactions. Providing advice doesn't mean merely putting together a model and undertaking documentation, but imparting a certain kind of judgment.

So our model tends is intensive as far as the senior management is concerned. In that sense, we are different compared with a lot of other banks. Our 800 bankers are just doing corporate advisory internationally. On the advisory front, we are as big as any other investment banking firm.

Traditionally, most Indian corporate houses combined capital with advice. People would not look at the quality of advice provided by the investment banks. But things are changing as corporate houses are taking advice seriously.

They are increasingly taking advice pertaining to cross-border transactions or for new ventures, and are willing to pay for it on a standalone basis. We are also seeing opportunities in advising international companies entering India as they are not familiar with the domestic market.

Are you disadvantaged by the fact that you don't provide finance?

I don't think it is a disadvantage. There are two elements to an M&A transaction. There's an element of doing the transaction, involving your past experience, understanding of a particular situation and the people behind it and the sector as a whole. That's core advisory work on the transaction front and it is about how to get a deal done on the best possible terms.

The second element is about financing. There are people who split the two. They seek the best transaction advice and finance, but won't combine them. Others want the advisor to have a good balance sheet as well. We have to be smart about our target business.

Until the recent US credit market turmoil, financing was never an issue, particularly for big corporates. Many serious players used to bid for financing a deal. Rothschild is the largest independent debt advisory company in Europe. We help corporates to get the best possible finance deals. Since we are not competing to provide finance, the clients know that we can get the best possible deal for them.

How is the situation looking on the deal street after the US subprime turmoil?

There is far greater uncertainty in the US and Europe, relative to Asia. Private equity led buyouts are very rare in Asia and particularly in India. The levels of leveraged debt for acquisition financing have been fairly modest. Thus, we don't see as much effect in India as in the more active markets such as Europe or the US.

Companies such as Tisco are raising funds aboard for financing. Are their costs going up significantly because of the rates?

The costs are going up. The spreads as well as the basic interest rates are heading up. The significant movement of Libor reflects the lack of liquidity in the market. Nobody can deny the fact that there are problems in the credit market. But India and Asia will get off lightly, compared with Europe and US.