UBS India Investment Banking is stepping on the gas

UBS will nearly double its investment banking staff in India to up to 180 (from 100 now) in the next year as it prepares to offer more services and retain its share of the increasingly competitive business, the head of UBS in India said.

UBS tops the merger and advisory table so far this year, up from seventh spot last year, data from Thomson Financial showed, leapfrogging rivals including Morgan Stanley , Citigroup , JPMorgan and Merrill Lynch.

Our challenge and our desire is to remain among the top three investment banks in India," Manisha Girotra, managing director and chairperson for UBS India, told the Reuters India Investment Summit on Thursday. The competition extended to staffing. Hiring and retention of talent were the biggest challenges, Girotra said, and took up 30-40 percent of her time.

UBS, the world's largest wealth manager, is also awaiting regulatory approval to offer additional services including fixed income, wealth management and high-end retail banking in India.
Globally, UBS has had a turbulent year. It closed Dillon Read Capital Management in May and in October announced its first group quarterly loss in five years. But it has said its wealth management business was poised for strong growth.

Source: Reuters

Ruias funding Algoma acquisition through senior notes & loans

Essar Global will raise $900 million through a combination of senior notes and loans to fund its acquisition of Canada’s Algoma Steel, reported Economic Times. The non-recourse fund raising exercise by Essar Global is the second-largest such transaction by an Indian steel company, after Tata Steel’s almost $7 billion loan to finance its acquisition of Corus.

The Ruias’ international holding company had acquired Algoma in April for $1.58 billion in an all-cash leveraged buyout. Essar Global’s acquisition is considered the second biggest by an Indian company in North America, after Hindalco paid $6 billion to buy Atlanta-based Novelis in February.

To finance its Algoma acquisition, Essar Global will sell $450 million of senior notes, recoursed to the Canadian company’s balance sheet. The eight-year notes, denominated in dollars, may yield 9.75% to 10%. UBS is the financial advisor to the offer.

Essar Global also plans to issue $450 million in loans, based on Algoma’s earnings. The group’s own contribution will be about $500 million. It could not be ascertained how the rest of the acquisition amount — about $100 million — will be raised.

Barclays Capital appoints Sanjay Mathur as Director

The Economic Times reports that Barclays Capital, the investment banking arm of global financial group Barclays, has appointed Sanjay Mathur from UBS as Director, Rates Research for its Asian operations (excluding Japan). Mathur would lead the firm's coverage of macro-economic research on the Indian subcontinent, Malaysia and Singapore. Prior to this, Mathur was working as Executive Director in the regional economic team of global financial firm UBS.

Malaysian government investment arm acquires 9% in IDFC for Rs. 848 crores

Khazanah Nasional Berhad has acquired 8.97% stake in Infrastructure Development Finance Company (IDFC), a specialized financial intermediary for infrastructure, for Rs. 848.16 crores. Khazanah Nasional is the investment holding arm of the Malaysian Government entrusted to manage the commercial assets held by the Government and to undertake strategic investments. Khazanah was incorporated in 1993 as a public limited company and commenced operations a year later.

Khazanah Nasional Berhad, through Sipadan Investments, acquired around 100.9 mn shares at a price of Rs. 84 each from UBS Securities Asia who sold the shares on behalf of Mauritius based Swiss Finance Corporation. As per the latest shareholding data available on the stock exchanges, Swiss Finance Corporation previously held 101.3 crore shares representing 9% stake in IDFC. Other foreign investors, who hold significant stakes in IDFC, are Indivest Private (3.79%), Nikko Cordial Corporation (2.49%), Morgan Stanley (3.62%), Goldman Sachs (3.73%) and Barclays Capital (4.96%).

Read the article in The Economic Times article.

Investment banking fees in India touch $200 mn from Jan-Feb 2007

Investment banking houses in India have generated a deal fee of around $200 mn in the months of January and February in 2007, as compared to $150 mn for the total year of 2006. Total fees earned during 2006, including equity and debt capital for India, was around $500 mn. Of the $500 million, equity capital markets could have contributed around 60% while around 10% could be the debt capital market fees. The M&A transactions have contributed the remaining $150 mn. Equity and capital market deals entail issuance of shares and bonds by companies to raise money.

For multi-billion deals above $10 bn, advisory fees range from 0.1% to 0.2% of the deal size or anywhere between $10-25 mn. Global i-banks charge a minimum of $1 mn. For small-sized deals, the fee could be around 3.5% of the deal size. With corporates looking at big-ticket deals which require large syndication ability of banks, a commitment fee is also now being levied. This would ensure a minimum payment to i-banks from the deal, even if the corporate eventually loses out in the bidding battle. As deals turn complex, i-banks have also started levying ‘drop dead’ fee or non-refundable fee in case of failed transactions. This is simply to compensate for their time and effort. The bigger chunk of the fee collected by i-banks is garnered from financing and structuring the deal. This fee could range anywhere between 0.50% and 1.25% of the deal size. Fees are higher for equity transactions.

In most of the recently announced deals, European banks have been the lead advisors as Europe has been the destination for the maximum number of acquisitions by Indian corporates. In case of Tata Steel, it was ABN-AMRO, Deutsche Bank and NM Rothschild, while in case of Vodafone and Hindalco, UBS was the sole advisor.

Read more in The Economic Times article.

Hindalco Industries buys US-based metal major Novelis for $6 bn

Hindalco Industries, the AV Birla Group’s flagship company and India’s largest aluminium producer, will acquire US-based aluminium company Novelis for $6 bn. The deal envisages a payment of $44.93 per share, which is 16.5% more than its last closing prices to Novelis shareholders amounting to a total of $3.5 bn. In addition, Hindalco will take on its books Novelis’ debt of $2.4 billion. The acquisition would help Hindalco get access to large customers like Coca-Cola, Ford, General Motors, Eastman Kodak and Thyssenkrupp. The acquisition is expected to be completed by the second quarter of 2007. The Novelis board has recommended the offer to its shareholders, largely financial institutions. The Novelis management will remain unchanged after the acquisition.

Novelis was spun off from Alcan, Inc. to meet anti-trust concerns after acquiring France’s Pechiney SA for about $4 bn in February 2004. it controls 19% of the world’s flat-rolled aluminium production. It is also the global leader in recycling of aluminium cans. The company operates in 11 countries and has 12,500 employees.

To finance the deal, Hindalco will contribute $450 mn from its treasury operations, while a closely held group company, Essel Mining & Industries, will invest another $300 mn. UBS is the financial advisor to Hindalco for the acquisition.

Novelis has about $3.2 bn in debt and loans outstanding. In November 2006, it reported a loss of $102 mn, or $1.38 a share, in the third quarter. In 2005, the company had reported net sales of $8.4 bn but incurred a loss due to contractual obligations. It is expected to turn profitable in 2010.

Read the article in Business Standard.

Deutsche names Sanjay Sharma head of India equity capital markets

Investment banking in India is bearing witness to many high-profile people movements of late. After Citigroup’s investment banking head Surojit Shome’s move to Lehman Brothers India, we now hear of Merrill Lynch old hand Sanjay Sharma quitting Merrill to lead Deutsche Bank’s Indian equity capital markets operations. Sharma’s vacancy is being filled by Sumeet Puri, who will be moving from his post as Asian equity syndicate head from Hong Kong (See Related Post).

Indian equity capital markets volume jumped 22% to more than $19 bn last year, as total investment banking revenue hit a record $413 mn. Indian stocks rose more than 45% in 2006. Deutsche ranked second in investment banking revenues behind Citigroup, with $42 mn in revenues from underwriting stock and bond deals and advising on mergers.

Investment banks like Lehman Brothers, Goldman Sachs and UBS are expanding their
India teams as the country’s companies become bigger global players. Lehman last month poached Citigroup’s Surojit Shome as head of investment banking for India. Bankers, particularly non-resident Indians, are keen to move to Mumbai and New Delhi as top salaries approach the same levels as those in Singapore and Hong Kong, and the market yields increasingly large and interesting transactions. However, intense competition between banks has taken a bite out of fees, with equity deals only paying an average of 1.6%, compared with 2.3% for Hong Kong offerings and up to 7% for initial public offerings in the United States.

Read the article in Reuters.com.

Software testing company up for sale by stakeholders ICICI Ventures and Acer Technologies

Bangalore-based independent software testing company RelQ has been put up for sale by ICICI Ventures and computer-maker Acer Technologies of Taiwan, the majority shareholders of the company. UBS is working on the mandate of bringing in the potential buyer. Companies such as KPIT Cummins, NIIT and CGI have already shown interest in buying RelQ.

RelQ is present in test automation, game testing and embedded software testing and has invested around $3 million towards infrastructure and test labs. RelQ is growing at a CAGR of 40% with revenues of $21 mn for the FY 2005-06 and estimated revenues of $33 mn for the FY 2006-07. It has a major presence in Bangalore with offices in the US, Europe and Singapore and a headcount of around 800. It has already acquired two companies, one in France and in the UK each.

The global market for testing services is estimated to be at $15 bn, of which $2-6 bn is expected to be outsourced to India by 2007. The CAGR for the independent outsourced testing market is estimated to be over 60%. Maveric and Thinksoft in Chennai and AppLabs in Hyderabad are some of the prominent independent testing companies in India.

Read the article in The Economic Times.

Indiabulls’ overseas real estate arm raises Rs. 1200 crores from LSE’s AIM

Indiabulls Real Estate’s overseas arm, Dev Property Development has raised Rs. 1200 crores from the London Stock Exchange’s AIM market. Investors include LN Mittal, Fidelity, Capital Research and the Singaporean government having picked up large stakes in the IPO. The company's shares will start trading on the exchange from Monday. The Dev Property IPO was managed by Deutsche Bank, Citigroup and UBS. The lead marketing agent of the issue was CLSA and KPMG is the statutory auditor of Dev Property Development.

Dev Property Development will buy minority stakes in the projects of Indiabulls through a secondary sale of shares by the latter and by investing fresh equity capital in Indiabulls' projects for a total consideration of Rs. 1055 crores. Indiabulls had received Rs. 437 crores by partial sale of its stake in Jupiter Mills and Elphinstone Mills development projects. Dev Property has also invested Rs. 618 crores in subsidiary companies of Indiabulls undertaking real estate projects. It would also have the right to co-invest along with Indiabulls in its future real estate projects.

Knight Frank has valued Indiabulls' real estate projects at Rs. 21,569 crores and Indiabulls' stake in its projects at Rs. 15,125 crores. Indiabulls' real estate business has been de-merged to Indiabulls Real Estate and its shares are expected to start trading in February. All shareholders of Indiabulls Financial Services received one share of Indiabulls Real Estate for every share they held in Indiabulls Financial Services. In December, Indiabulls Infrastructure, a subsidiary of Indiabulls Real Estate, had sold 13.3% stake to LN Mittal and Farallon for a consideration of Rs. 447 crores.

Read The Times of India article.

UBS acquires the Indian arm of Standard Chartered Mutual Fund

UBS Global Asset Management has agreed to acquire Standard Chartered’s Indian mutual fund management business for a total consideration of CHF 147 mn (around Rs. 516 crores). The Indian unit of Standard Chartered Mutual Fund is India’s ninth-largest mutual fund and will add to CHF 4 bn to UBS’ assets under management (AUM). It had 4% share of the domestic market

The transaction is structured as the acquisition of a 100% interest in Standard Chartered Asset Management Company Private Limited, and Standard Chartered Trustee Company Private Limited, the manager and the trustee, respectively, of the mutual funds offered by the company. The move remains subject to regulatory approval, as well as to a price adjustment linked to assets under management at closing. The acquisition included 16 mutual funds, 10 of which were fixed income, 2 involving asset allocation and 4 in equities.

The total size of the Indian mutual fund market is just short of $100 bn and has grown by around 26% a year since 2001, and surged 62% last year.

Read the article in Business Standard.

UB to acquire Whyte & Mackay for £500 mn

The United Breweries Group is close to acquiring Glasgow-based distillers Whyte & Mackay for nearly £500 mn (Rs. 4350 crores) by January-end. This will be the largest outbound acquisition by an Indian company.

United Spirits, a part of the group flagship United Breweries, might be the investment vehicle for the acquisition of Whyte & Mackay.

Citigroup advised Whyte & Mackay, while United Spirits was advised by UBS.

The acquisition follows United Breweries’ attempt to acquire Taittinger, the world’s sixth largest champagne company, for £400 mn.

Read more in the Business Standard article.

Top investment banks back out of DLF issue

Two of the book running lead managers (BRLM), involved in the mega-IPO of real estate behemoth DLF have backed out of managing the issue. Enam Financial Services and JM Morgan Stanley seemed to disagree over valuations of the company with the DLF management, and have withdrawn from managing the issue. They have been replaced Lehman Brothers and Deutsche Equities, as per the revised prospectus filed with the Securities and Exchange Board of India (SEBI).

Nimish Kampani, CMD, JM Morgan Stanley, also happens to be a member of the SEBI’s capital markets committee.

Kotak Mahindra Capital and DSP Merrill Lynch have been retained as the global coordinators for the issue, so have been Citigroup, ICICI Securities and UBS AG as the other book-running lead managers for the issue. SBI Capital Markets is the co-book runner for the IPO.

This is the second time in which investment banks have backed out of an IPO. Earlier, during the IPO of low-cost airline operator Deccan Aviation, the BRLMs SBI Capital Markets, JP Morgan and ABN-AMRO Rothschild had backed off, citing differences over valuation. The issue was finally handled by Enam Financial Services and ICICI Securities.

Read the Business Standard article.

Vodafone also in the race for Hutch

After Reliance, Maxis, Bharti and Essar itself, the Hutch-Essar JV seems to have found a new suitor. It seems that Vodafone, the British telecom giant, is reported to bid for Hutch-Essar. UBS, which is Vodafone’s house banker, is said to be advising the company on financing and acquisition strategies.

Both Vodafone and UBS have refused to comment on the development.

Vodafone is selling its stake in its holdings across market as it faces severe investor backlash. It sold its 25% stake in Swisscom for about $3.5 billion and a similar stake in a Belgian wireless operator to Belgacom; before that it had exited companies in both Sweden and Japan. The Japanese transaction was valued at about $16 billion.

In India, Vodafone has invested in a 10% stake in Bharti Airtel, the value of which now is estimated to be around Rs. 16, 000 crores. Vodafone might consider selling its stake in Bharti for financing the acquisition.

Read the article from The Economic Times.

Shinsei Bank to set up mutual fund business in India

Another Japanese firm is planning to enter the asset management business in India. Shinsei Bank is reportedly forming an asset management JV with the South-based Andhra Bank. This is the second such announcement by a Japanese financial services company – earlier Nikko AMC had announced a similar kind of JV with the Ambit group. Shinsei will have a majority stake in the business. Shinsei had previouslyannounced a tie-up with UTI MF to invest $300 mn, raised from Japanese investors, in the Indian stock markets. Of late, many foreign funds such as Japan’s Mitsui, Korea’s Mirae, UBS, Aviva, Pioneer, etc. are planning to enter the Indian mutual fund space.

Read Business Standard for more details.

Ambani goes for the kill, to buy out Ruia's stake as well

Finally, Anil Ambani has made his intentions absolutely clear. Reliance Communications will buy out Hutch-Essar in its entirety. Nimesh Kampani, representing the Ruias is believed to have held meetings with Anil Ambani. Various parties as interested in buying out Hutchison’s stake in Hutch-Essar are doing the rounds of investment circles. These include Ruias themselves raising debt from banks and buying Hutch’s stake in the JV. Bharti’s Mittals are also heard to be interested in buying out the company. Even the name of the Tatas has been mentioned. Maxis, the Malaysian telecom company, is also set to bid for Hutch-Essar. The Ruias stand to gain around $4-5 bn if they sell their stake to Reliance Communications. Ruias are being advised by Morgan Stanley and Goldman Sachs. UBS is advising Ambani on the deal. Buyout funds like Blackstone, Texas Pacific, Carlyle and Kohlberg Kravis Roberts, among others, are supporting Reliance to structure the financing. With about $10 billion through cash to buy equity and around $2-4 billion as debt from major foreign banks, Reliance seems to be the frontrunner in getting the Hutch-Essar telecom business.

Read the article from Business Standard.

Reliance Comm dials banks for Hutch deal

Anil Ambani is leaving no stone unturned to acquire the prized 67% stake of Hutchinson Whampoa in Hutch-Essar. As of latest reports, Reliance Communications has tied exclusivity agreements with a number of foreign banks, presumably, Citibank, HSBC, ABN-AMRO and UBS. This means that not only will these banks provide the necessary debt for the transaction, but the agreements will also prevent them from working with any other prospective or existing bidder. This agreement with the said four banks is crucial, as all have expertise in multi-billion dollar cross-border acquisition financing and their experience would have been of enormous use to rivals. RCL is already in talks with private equity funds such as Kohlberg Kravis Roberts & Co (KKR), Blackstone and Texas Pacific Group for equity financing.

For more, read the following articles The Economic Times, The Financial Express and Business Standard.