Last year, Barclays India rose to the fourth position in the list of merger and acquisition (M&A) advisors, closing deals worth $12 billion. In 2011, it was 17th on the list. On the list of debt capital market bookrunners, it rose from the sixth slot to the fifth, with 50 transactions worth $2.3 billion. Jaideep Khanna, managing director and head of corporate and investment banking at Barclays India, in an interview with Reghu Balakrishnan, talks about his expectations on debt, equity markets and M&As in 2013. Edited excerpts:
How did Barclays’ investment banking business in India fare last year?
Year 2012 was a strong one for fixed income. Barclays increased market share in both domestic and cross-border bond markets. Cross-border issuance volumes picked up after we helped open the markets with State Bank of India’s $1.25-billion bond issue in July. We’ve also been associated with Reliance Industries’ $1-billion bond issue and the subsequent $500-million tap offering. In December, we announced two M&A transactions and on the equities front, we concluded the largest Indian initial public offering (IPO) for 2012 (Bharti Infratel), for which we were the joint bookrunners. The government has also mandated us for the BSE and Hindustan Aeronautics Limited IPOs.
What were the challenges in closing deals last year?
Given the state of the market, we have seen buyers being cautious about transactions. There was a greater level of scrutiny and evaluation, with clients not rushing into a transaction. At the same time, based on our interaction, we feel there is good appetite for the right opportunities. In the case of our own transactions, we have seen buyers eventually consummating transactions.
What are the positives?
We feel the overall sentiment towards India is turning positive and it is good to see the government is finally pushing ahead with progressive policies and legislative intent. This would definitely bode well, not only for the foreign investor community, but also for the overall investment climate in the country, including domestic corporations and entrepreneurs. Going into 2013, we are optimistic. We expect a positive environment for investors and borrowers across products.
Barclays carried out two M&A deals in the pharmaceutical and healthcare segment. Would the deal flow in this sector continue?
We believe the sector has a lot of potential and would continue to see interest from both domestic and international players who wish to consolidate and expand their presence.
Which sectors would see increased M&A activity this year?
We are seeing broad-based interest across sectors — natural resources, TMT (technology, media and telecommunications), consumer and retail, healthcare and industrials. We believe inbound activity would continue to be stronger than outbound activity, at least in the first half. As the overall capital market environment and economic conditions improve, we should start seeing a rise in outbound activity beyond natural resources as well.
After a long wait, the Bharti Infratel IPO was launched in 2012. Do you expect the IPO market to revive in 2013?
Yes, the IPO market would revive in 2013. December saw the close of three successful IPOs and one OFS (offer for sale), all in a week. The Bharti Infratel IPO was the largest Indian IPO in two years. It’s a strong signal investors have an appetite for quality paper at the right valuation. Investors are keen to invest in companies that have strong market standing and healthy cash flow generation capability. Having said this, some high-beta sectors would have to wait for markets to strengthen further before tapping into the IPO market.
What would be the trend in 2013?
Indian capital markets have witnessed a gradual, but steady improvement through 2012, a trend that would accelerate in 2013. The nature of transactions would be more diverse compared to 2012, when secondary block transactions dominated. In addition to IPOs, we expect a significant pick-up in follow-on offerings and qualified institutional placements (QIP) this year. Given the need to meet the minimum public requirement by June, we also expect more OFS transactions.
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Would more companies go abroad to raise funds this year, as domestic rates are at a high?
Yes. We expect more and more issuers to tap the debt capital markets, both onshore and offshore. With Basel-III norms coming in and the consequent increase in banks’ capital requirements, quality borrowers would be able to raise funds more efficiently by tapping bond markets.
Investment banking revenues are falling. What would the scenario be this year?
Banking revenues are a reflection of the overall economic environment. There is a reason to believe 2013 holds more promise for the economy, not just the banking industry. We have seen a fair degree of legislative activity during the winter session of Parliament and this momentum build-up would be instrumental in improving the perspective on India, both within the country and internationally, in 2013.
All foreign investment banks rely on job cuts and this strategy was reflected in India, too. Would investment banks carry out job cuts this year?
Foreign banks, including investment banks, do not rely on job cuts as their strategy for growth. At Barclays, we are focused on providing value to our clients and directing our energies towards being relevant to corporate India. We strive to keep the best talent. Job creation would always be a function of a positive economic environment, which we expect in 2013.