JUST BACK FROM my latest jaunt to Mumbai, where I hosted an offshore financing roundtable that focused principally on the easing of the country’s rules around outward- and inward-bound equity and debt depositary receipts. MS Sahoo, who headed the committee that proposed the changes, himself came along to outline his main recommendations, which have been promptly accepted by the new government.
Mumbai is a captivating and entrancing place, but it is confounding and frustrating at the same time – the clichéd juxtaposition of mega-wealth and poverty is still arresting. The Lodha Group’s World Towers development, currently under construction in South Mumbai, will result in the world’s tallest residential building where at the top end (both in price and, I imagine, distance from the ground) apartments will go for close to US$10m.
So what’s confounding? So much. I visited some of the factories in Dharavi. Once you get over the initially harrowing surroundings of what used to be Asia’s largest slum, what strikes you is the incredible level of industry and the resourcefulness of the people working there. It’s a hive of manufacturing of goods that are exported to industrial and commercial customers throughout India and the world, not to mention a recycling prowess that puts developed nations to shame.
People estimate the annual turnover of Dharavi’s commercial activities at up to US$1bn. Yet despite the ton of cash being generated, factory owners have refused to sign up to the US$2bn redevelopment project that’s long been tabled. I don’t know enough about the small print but in the end I guess it’s about politics and entitlement. But it does make you wonder.
With regard to politics at a national level, you can argue back and forth about the achievements of the new Modi government and its chances of getting its economic programme through. There were reams of pro and anti analysis of Modi’s first 100 days in office, which came around while I was there. To summarise, there have been a few steps forward, some steps back, but one thing is undeniable: there’s a greater sense of optimism out there that has filtered down to the capital markets.
The fact that India’s main stock indices have been going gangbusters is clearly helpful. Analysts are predicting that prices will keep on rising, driven not just by economic optimism and faster growth but by the pragmatics of better corporate earnings too.
There’s a greater sense of optimism out there that has filtered down to the capital markets
IN THE REGULATORY and deregulatory arenas, there’s a lot going on that will end up enriching India’s capital markets and make them more competitive. The changes to DR rules I referred to above (including creation of unsponsored programmes and the creation of Level One and Level Two Bharat DRs to drive portfolio diversification and risk reduction by Indian investors) should facilitate equity capital markets activity at home, as will broadening out the opportunities for Indian companies to initiate international programmes.
ECM will also get a kicker from a host of other areas. Recent rule changes to REITs and the creation of their InvIT cousins (as a key instrument to channel crucially-needed investment into infrastructure); the imperative of state companies to raise their free-floats to 25% over the next three years; state asset sales; the loosening of the offer-for-sale equity-raising mechanism; and discussions around increasing the FII cap on the insurance sector are just a few drivers. While Indian QIPs have been frequent, there have been far too few Indian IPOs year-to-date. The pipeline is looking good, however, and expectations are high.
In the debt world, the expansion of Basel III-compliant AT1 and Tier 2 distribution to retail investors (on condition of investor sign-off for loss-absorbency features), reduction of the AT1 call period from 10 to five years and of the Tier 2 minimum maturity from 10 years to five years will drive capital issuance. There is a primary pipeline building following Bank of India’s maiden voyage.
Beyond that, liberalisation around issuance of onshore senior bonds (to cut Indian banks’ eye-poppingly worrisome asset-liability mismatches); restrictions on shadow bank lending to corporates against stock; the reduction of concentration risk percentages by banks to single corporate groups; reductions on withholding tax on offshore corporate bonds; the move allowing non-resident lenders under External Commercial Borrowing arrangements to engage in rupee lending against swaps with Authorised Dealer Category I banks should all have a positive impact on debt capital markets.
IT’S WORTH POINTING out, by the way, that MS Sahoo’s current project is an extensive report on the External Commercial Borrowing regime.
One of the goals is to transform Mumbai into an international financial centre. It already has many of the elements required to achieve hub status. A reform-minded government that develops a programme of economic change, which continues to unblock bureaucratic sclerosis and inefficiencies; and reduces the involvement of the state in every aspect of the country’s workings, are key conditions for that. Much intent has been laid out in this regard.
As ever in India, though, one major problem is the difficulty of getting around this sprawling city. The amazing four-year-old Bandra-Worli Sea Link bridge and the opening earlier this year of Phase I (of three phases) of the Mumbai monorail shows that transport projects are achievable even if they’re dogged by cost-overruns and major delays. But I still spent far too much time sitting in gridlocked traffic in fierce monsoon rain (which of course no-one can do anything about).
And it’s still hard to find a late-night cocktail in the glitzy avenues of South Mumbai. Now that’s really confounding.
