SBI hunts for investment bank abroad

For a larger pie in business opportunities thrown up by the rising cross-border acquisitions by Indian companies, the country's largest bank, State Bank of India (SBI), is looking to acquire a small investment banking firm in Europe.

"There was a surge in overseas M&As by Indian companies, especially in 2006-07, for which the bank had increased its support activity through overseas branches. While the size of the balance sheet is important to fund M&As, investment banking skills for structuring and syndication are also crucial and the bank needs to strengthen its experience and skill sets in these areas," a senior SBI official said.

The bank has supported the acquisitions of Indian corporates in the global market. In 2006-07, India's largest lender funded 13 deals with a total exposure of over $1 billion. To boost this portfolio, it has set up a syndication and participation desk in Singapore. Another desk will be created in London in the current financial year.

When compared to global players, SBI's presence in international financial centres, the backbone of M&A finance, is limited. This has prompted SBI to scout for a small investment bank in Europe, which has the necessary skills and network for supporting the M&A finance activity, he said.

The search is still in the initial stages, and the acquired firm may act as a distinct entity with the ability to provide market-linked remuneration for investment bankers, he said.

SBI Capital Market, SBI's wholly-owned investment banking subsidiary, which has an office in London, would collaborate with the acquired entity to support Indian corporates, another SBI official said.

The rise in outbound M&As by Indian corporates has created a huge demand for foreign currency loans in the overseas market. There is a distinct shift in the nature of funding from plain fund raising to structured foreign currency loans, the officials said.

SBI has raised the size of its medium-term notes (bond issuance) programme to $5 billion to meet the future funding needs of its global operations.

According to Thomson Financial database, in the first half of 2007, Indian cross-border M&A inbound volume more than tripled, amounting to $25.5 billion from 170 deals compared with $5.6 billion from 178 transactions during the same period in 2006. The total announced cross-border acquisitions by Indian companies nearly doubled to $14.5 billion compared with the first half of 2006.