Undeterred by a slowing economy and declining business in equity sales and mergers and acquisitions, American investment bank Jefferies Group?s Indian arm, Jefferies India, has strengthened its full range of i-banking suite.
?We needed to find a way to build a full-scale investment banking business to address clients? needs,? says Probir Rao, managing director and head of India Investment Banking and Capital Markets at Jefferies India.
Jefferies, which started its Indian operations in 2006 with a single product to help Indian companies raise money by selling convertible bonds, has now built equity sales, research and distribution, and strengthened four sectors ? energy, metals and mining, healthcare and information technology.
?We expanded our footprint and product platform as we did not want to be caught in a cyclical business,? says Rao, who joined the bank after a 15-year stint with UBS India. ?At first, I was the only one in India. Now we have a 15-member i-bank team.?
Consultants say the bank is preparing to capture the growth phase in the next 18 months after a two-year lull. ?It is going to be a struggle now, but there could be a take off for i-bankers after 18 months,? says R Subramanian, vice-president, financial services, Avalon Global research.
?European banks are focusing on the home market. So, the rush to India could come from Japanese and Korean investment banks to help their companies expand.?
Jefferies, which cut its balance sheet by one fourth in December to $35 billion, has been steadily building a strong Asian team, including India, to tide over the slowing business in Europe and the US. It hired 110 bankers in Hong Kong for its equity sales, distribution and research and strengthened its Indian office.
?We got a Pan-Asia equities team, which will dove tail into the Indian piece,? says Rao. ?We know that 80% demand for Indian equities will come from Hong Kong, Singapore and India and the rest from the US and Europe.? But, Jefferies, which earns 45% of global revenues from i-banking, may find it tough in the Indian market as avenues for Indian companies to tap the equity market have nearly dried up. Volume of mergers and acquisitions are also declining.
The volume of M&As halved to $29.2 billion in 2011 with 294 deals from $51.8 billion in the previous year, data provided by Merger Markets show. Foreign companies invested $24.8 billion, but Indian companies? urge to purchase overseas companies dipped to $6.5 billion, one-fourth of the previous year?s $23.6 billion. But, deal makers say the numbers will be encouraging this year.
However, some bankers say 2012 may see a rebound. ?It will be an M&A market,? says Ram Prasad, managing director, Mape Advisory. ?We are getting interest from overseas companies to invest in technology, pharma and engineering companies.?
Some consultants say the road ahead will be full of challenges. ?Business is tough due to the decreasing fee pot and the fragmented industry,? says Rajeev Suneja, partner, financial services, Ernst & Young India, a consulting and advisory firm. ?The avenues to raise money through a public offer or sale of shares to qualified investors (QIPs) are shrinking due to the volatile stock market and a slowing economy.?
?IBs have switched focus to M&A and PE deals to deploy their teams effectively,? he adds. But, Rao is putting up a brave front, with some marque deals behind him in his bank? four strong verticals. In energy, Jefferies advised Reliance Industries to purchase Atlas Energy for $1.7 billion and help sew up a joint venture with Carrizo energy for shale gas. It was the banker to the iGate Computers? purchase of Patni Computers for $1.5billion and, last month, it helped Strides Acrolab sell some of its overseas business to Watson Pharma for $393 million. It also advised Religare Capital in purchasing North Gate and Landmark capital overseas.
But the challenge now is to retain right talent for the right job. Parent Jefferies, where employees own a significant stake, has not laid off even a single staff in India.
?Relying on just mergers and acquisitions fees will put pressure on i-banks to maintain teams. Until market revives, the challenge remains,? says Suneja of Ernst & Young. His comments are not specific to Jefferies.
?i-banks can either be a big fish in a small pond or a big fish in an ocean; we chose the second one,? says Rao. ?We decided against pursuing a boutique model.?
