Indian financial services companies find green pastures abroad

Indian banks and investment banks are investing in global financial centres such as London, New York, Singapore and Dubai to better serve the growing and very lucrative market for cross-border deals involving Indian companies. Here's a quiz question: Which Indian bank has the largest presence outside India The answer is not as easy and straightforward as it looks. The top spot is claimed by two banks - Bank of Baroda, which has 51 branches in foreign countries, and State Bank of India, which has 48 foreign branches and four subsidiary banks in London, New York, Nepal, and Mauritius. The story is brighter with Indian investment banks. Almost every company worth its salt has branches in Dubai, London, Singapore and New York. Following their clients Over the last decade and a half, almost every large and several medium sized Indian companies and conglomerates have ventured outside the country, taking over foreign rivals, forming joint ventures and setting up subsidiaries across the world. Then, hundreds of Indian companies have raised billions of dollars in debt and other forms of financing from markets in the US, Europe and Asia. It was but natural that many of their domestic partners - Indian investment banks and financial services companies such as JM Financial, SBI Capital Markets, Anand Rathi & Co, Avendus and Religare, among others, would follow them in their quest for a slice of the pie. Hitting the high notes Last year was a particularly good one for cross-border deals in India as inbound and outbound investments, mainly in M&A activities, clocked $31.1 billion across 362 deals, according to an EY report. The largest inbound deal was the $12.9-billion takeover of Essar Oil by a group of Russian investors led by Rosneft. There are also 158 outbound deals, the ones mainly chased by Indian financial services companies, valued at almost $10 billion - a 160 per cent increase in terms of deal value and an 8 per cent increase in volume terms. The oil & gas sector mainly drove the outbound deals, with a cumulative value of $5.5 billion. Roping in foreign partners More and more Indian investment banks are tying up with their counterparts in Japan, Europe and the US to handle the rising number of cross-border deals involving Indian companies. A few years ago, Kotak Mahindra Capital tied up with Japan's Sumitomo Mitsui Banking Corporation and Nikko Securities to get a slice of the increasing number of M&A deals in India involving Japanese companies. Then, the Kotak investment bank also signed up Evercore Partners of the US for similar deals in the US and the UK and it is also part of the Mid-Cap Alliance, a body of small investment banks with a presence across Europe. Axis Bank's investment banking arm, Axis Capital, has a tie-up Robert W Baird & Co of the US to advise on cross-border M&A deals between India on the one hand and the US and Europe on the other. ICICI Securities has not one but as many as three such alliances. It has a partnership with GCA Savvian Corporation of Japan to advise companies on cross-border deals involving Indian and Japanese companies. It also has such partneships with Canaccord Genuity in Europe and Oppenheimer & Co in the US. Anand Rathi, on the other hand, has an alliance with Piper Jaffray, a leading NYSE-listed mid-market investment bank. Yes Bank, IDFC and Ambit Capital, too, have all tied up with foreign partners to access deals in their respective home markets. Yes Bank has partnerships with Harris Williams and Co of the US, Shinsei Bank of Japan, Hana Bank of South Korea and Poalim Capital Markets of Israel, while Ambit Capital has an alliance with Societe Generale SA dating back to 2009. The logic behind foreign partners The big name investment banks from the US, Europe and Japan have historically bagged disproportionately large number of overseas M&A as well as fundraising deals involving Indian companies. All these Indian companies have chosen to grow abroad via the partnership route because of relationships that each side brings to the table. The foreign partner has existing relationships with leading companies and corporate captains in their home countries while the Indian investment banks bring their understanding and age-old relationships with top business tycoons and their companies to the alliance, making it a win-win for both sides. Singapore the preferred gateway JM Financial, promoted by Nimesh Kampani, the now retired doyen of deal making in India, opened its first foreign office in Singapore to tap into the lucrative market in South East Asia. SBI Capital Markets, too, has an outpost in Singapore that helps Indian companies raise funds abroad and also advises on M&A deals in the region. In addition, it offers investors in other Asian markets insights and access to the Indian market. Newbies lead the way Contrary to expectations, it wasn't the old and long established Indian financial services companies that led the investing in foreign shores but relative newcomers such as Religare, Avenus and o3 Capital that first opened offices in leading global financial hubs such as London, New York and Singapore. But they met with only mixed success. The established companies such as JM Financial, SBI Capital Markets and ICICI Securities, among several others, joined the list of Indian investment banks going abroad only later. Role reversal In the early years of this century, several Indian companies ventured abroad to take over companies and raise funds denominated in foreign currencies. The Indian takeover boom reached a fever pitch in the 2005-2008 period when a number of high profile, high value deals - such as Tata Steel's acquisition of Corus, Tata Motors' takeover of Jaguar Land Rover and Aditya Birla Group's buyout of Novellis - took place. With outbound deals at an all-time high, Indian investment banks reached out to find partners in foreign markets to help and advise clients, many of whom struck smaller, less reported deals at much lower valuations than the three marquee deals mentioned above. Then, the tide turned and inbound M&A deals gained momentum. Foreign investment banks advising their US, Europe and Japan-based clients then sought out Indian counterparts to advise them on doing business in the Indian landscape. And this is where, in many instances, the foreign operations of these Indian firms helped forge these partnerships. India story driving growth As India moved from the fringes of the world economy to emerge as its “only bright spot” in the words of International Monetary Fund (IMF) Managing Director Christine Lagarde, the needs of Indian companies to access the global market for funds and M&A advice created new business opportunities for both Indian and foreign investment banks. The investment simply followed the opportunities. Leading Indian investment bankers don't rule out the possibility of making fresh investments and opening new offices in hitherto untapped markets such as Australia, Israel, Saudi Arabia and some countries in Africa as and when business opportunities open up in these markets. Banks are in business as well It is not only Indian investment banks that have spread their wings abroad. Indian banks, mainly in the public sector, have established more than a toehold in foreign markets such as the US, Canada, the UK, Nepal, Mauritius and the Middle East. Total advances by Indian bank branches abroad is in the region of $150 billion. Their main customer base comprises Indians, people of Indian origin and businesses run by them. But they also cater to nationals of the countries they operate in, thus, contributing significantly to boosting the local economies and creating jobs there. Road ahead The Indian banking industry is expected to become the world's fifth largest by 2020, according to a report by Big Four consulting firm KPMG and the Confederation of Indian Industry (CII). While domestic operations will account for a large proportion of this growth, the foreign operations of Indian banks will also contribute significantly to the overall industry figure. Investment banking, too, will grow in tandem with increasing cross-border M&A deals and more and more Indian I-banks will venture abroad not only to garner a slice of the deals involving Indian companies but also to try and bite off a little bit of the business that overseas companies offer. The future looks rosy for the Indian financial services sector.