Amit Bordia, who co-heads corporate finance and also runs capital markets and treasury solutions at Deutsche Bank, talks to Samie Modak about the improving deal flow in the country. Recently, relocated from the bank’s London office, Bordia expects a strong equity capital market in 2013. Edited excerpts:
Last few years have been tough. What’s the outlook for 2013 ?
Obviously, 2011 was a challenging year. The first half of 2012 was challenging but with the reforms trickling in, the market went up first and now it is spreading to actual business sentiment. Corporates are now much more optimistic as every week there is some positive news on the reform front. Over the last two years there was a large overhang over the direction in the US and Europe as well. Many of these issues may not have been fully resolved but what you are clearly seeing is that the tail risk has reduced significantly. So, a combination of international tail risks reducing and domestic optimism returning on the back of some strong reforms, have suddenly made the investment climate much better.
Do you expect the strong deal flow seen in December to continue?
I think the momentum will continue. Those corporates who will have good quarterly results would like to cash in on that. While new capex could be some time away, it is a great time to sort out your capital structure. Companies are now thinking hard on what opportunities to explore, which part of capital structure needs correction and are accordingly acting.
What is the outside in view on India?
Broadly, there is a clear view that a corner has been turned in the last three to four months. The overarching sentiment among global investors was that India was playing much below its potential for the last two years or so. That said, most international investors are convinced of and excited by India’s fundamental growth potential. This has led to a lot of latent demand. If we continue with the reforms agenda and if the companies access the international markets smartly, that demand can be tapped to great benefit.
Do you think the current valuations will give confidence to promoters?
Promoters, who had pent up plans but couldn’t issue in the equities market because valuations were low and liquidity was tight, will have regained confidence. We are predicting a very strong equity capital market in 2013. Over the next two or three quarters, we will see companies issue more and eventually the initial public offering pipeline will kick in. On the debt market side, a combination of interest rates and credit spreads, both at very attractive levels, make it very compelling. We all know that there is liquidity internationally and a lot of money that has to be put to work. A wide consensus among market professionals is that we might see a turn in the rates cycle globally. Therefore, you are seeing a lot of interest in issuances.
What kind of financing do you expect dominating in 2013?
We will see more public market transactions, both in terms of equity as well debt issuances. We are predicting a swing from structured or private financing into much more public issuances. Markets have bounced back and with regular investors back, flows are coming in and, as a result, confidence is back. It is probably the best issuance climate there has been in the last three years and that will translate into deal flow.
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What are the trends we are seeing on the refinancing side?
The dollar market is still attractive. If you compare the rupee environment with the dollar environment, it was very clear why corporates were dollarising some of their debts. As rupee interest rates start climbing down and as dollar interest rates start climbing up, that trend might reverse. People will find local issuances more attractive as well. That said, some of the corporates should continue to look to dollarise their funding, specially where they have underlying dollar cash flows or where the name is well poised to tap into demand for Indian paper.
Given the tough competitive environment, how is Deutsche Bank positioned to tap the market?
We have recently reorganised our corporate coverage teams and brought them under one common umbrella - the corporate finance division. Today, at Deutsche, there is only one team that covers corporates, and has the ability to bring to bear expertise across advisory, capital markets, financing, hedging as well as transaction banking to address client-specific needs.
Do you expect investment banking revenues panning out in 2013?
Even though India is a tight fee paying market, I think some fees on the issuances side will come back. 2012 clearly was a tough year, and 2013 will be a better year for the industry as a whole.