Beeline for deal street

| Updated: Mar 25 2006, 05:30am hrs
With India now ranking the third most lucrative investment banking market in Asia, after China and South Korea (domestic investment banking fee incomes doubled to $381 million in the year to December), the rush of deal makers to Mumbai is hardly surprising. Even so, the last three months have been particularly hectic with some of top global investment banking majors actually writing out cheques to go solo here.

Goldman Sachs & Co is the latest one to go alone, parting ways with the Kotak Group, its partner of a decade. The New York-headquarted bank sold its quarter-stakes in two Kotak joint venture firms back to its partner for a firesale Rs 333 crore ($74 million) on March 16. Goldman will invest $1 billion to build a local presence.

The intention of both partners is crystal clear: they want to grow in size. Kotak wants to build an Indian institution of global scale with a sizeable share of the domestic market. Managing director Uday Kotak says, We want to build an Indian financial institution in the M&A space with global class and capabilities.

On the other hand, Goldman wants to service its global clients and route their funds through its own worldwide network, not having to share commissions and income with a partner. India presents a compelling case, says its India CEO Brooks Entwistle (see interview).

Goldman has company. In December, its cross-town rival Merrill Lynch & Co. made public its ambitions to grab a sizeable share of the Indian investment banking market. But, its strategy was different. Instead of selling, it bought out out investment banker Hemendra Kothari's stake in their venture DSP Merrill Lynch for $500 million.

Merrill saw the money well spent. Soon after the deal, in answer to a query on how it felt to receive a cheque of $500 million, Kothari told FE, It would have been $200 million two years ago, and $1 billion three years later. Merrill, with global client assets of close to $1.7 trillion, got an independent, established presence in the booming Indian economy.

Others have been taking similar steps too. Investment bank Rothschild, for instance, has forged a working arrangement - sans any equity relationship - with ABN Amro. The duo recently handled its first public issue, that of Mahindra & Mahindra Financial Services Ltd. and is managing the float of low-cost airline Deccan Aviation Ltd. Not so long ago, international investment banker, CLSA joined hands with SBI Capital Markets Ltd to work on large deals in equity markets and advise on mergers and acquisitions (M&As).

Have global majors woken to the India story late ABN Amro Asia Corporate Finance managing director Frank Hancock says: The Indian economy is booming and almost all the global brands are looking at India. It will witness a number of [M&A] deals in future.

Australian investment house Macquarie Bank that made its India entry recently agrees. Says Hon Warwick Smith, its executive director: Our plans allow us to service global investors looking for opportunities in India and offer clients our unparalleled access to regional and global markets. Macquarie's property, financial services, treasury and commodities groups are also scouting India.

The Kotak-Goldman and DSP-Merrill deals leave just one investment banker in the K triumvirate of Kothari, Kotak and Kampani standing: Nimesh Kampani of JM Morgan Stanley. Will that JV survive the onslaught of the global majors chasing the India opportunity or succumb to it No one's telling just yet. But the writing on the wall is clear: the Indian financial sector is an idea whose time has truly come.

Our knowledge, experience has grown

Brooks Entwistle, CEO, Goldman Sachs (India), spoke with Yagnesh Kansara and Ashish Rukhaiyar on the decision to part ways with the Kotak group in India.
What made Goldman Sachs decide its time to do business alone
The Indian market represents a tremendous opportunity. Now there is a compelling case for us to build an onshore presence which is integrated with our global businesses. We believe the best way to achieve global integration and to capture this market's growth is by pursuing an independent business strategy.
What were the market conditions at the time of forming the Kotak JV and how is it different now
Ten years ago we were new to India and we took a view that working with a local partner would be the best way to learn about the market. Ten years on, not only has the market significantly grown in size, so has our knowledge and experience.
Your global rivals are already heading to India. Will you be able to carve a place on your own, given the stiff competition
Our clients tell us they want us to deliver our global resources to India while taking India to the world through our global network. We think we have a lot to offer and that over time we will have a platform here comparable to our presence in other major financial markets around the world.