IFR India Offshore Financing Roundtable 2014 (Held in 2013)

To view the digital version of this report please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.   IFR: Recently the Indian Government allowed unlisted companies to list abroad but will there be investor interest in companies which are not domestically listed and for which there is lack of research and visibility?   Samarth Jagnani: It depends upon the sector in which the company is located. These guidelines are beneficial to companies which have businesses abroad and India is not their primary kind of country in terms of revenue. High end pharmaceutical and life science research and development companies can find natural markets in the US and Switzerland. It will take months for such a company to explain itself to mutual funds in India because they don’t have the domain expertise. Indian companies just cannot go abroad because they don’t want to list in India. There has to be some rationale. They may also want to list in markets where they don’t have any currency related risk.   Paritosh Basu:   You need to have a substantial story to tell if you want to list abroad. Post the general elections, we could see some Indian companies with overseas listing plans.  It all depends upon how ready the companies are and how much governance change the managements can do.   Tarun Gupta:  I think Bhavna touched upon this issue. A lot of private equity in the unlisted space is looking for exit. Whatever discussions we are having with some private equity players, there is a thought process to look at overseas listing for companies which lack a considerable peer group in India. Medical technology and biotech are examples of such sectors.  Visibility to be part of a larger peer group is a great driver for companies.   IFR: What kind of regulatory framework are we expecting for unlisted companies to list abroad?   Abhimanyu Bhattacharya: The ministry of finance notification and the Reserve Bank of India notification have set out the basic framework for unlisted companies. I think we are currently waiting clarification from the government on issues pertaining to pricing of these issues.   Avinash Gupta:  Maybe a couple of thoughts for my co-panelist as well. So in terms of the unlisted companies being allowed to list abroad, some things are good and some things are cosmetic. I am not sure how different it is from the past when if you had a smart lawyer and accountant you could put a structure on top of it [unlisted company] and get it listed. The government is making the rules more elaborate in terms of procedure.  What my co-panelists are saying is right, what companies need to know now is what the investors want and what are the merits of doing an overseas listing versus an Indian listing.   Bhavna Thakur: We feel hopefully in the coming year some of these companies will start thinking about an India listing and overseas listing. We are having many conversations with issuers including private equity who are questioning if they should look at a domestic issue or an overseas listing. When the safety net was talked about some of the private equity folks were questioning if they should look at an alternate jurisdiction because they were concerned that it would become a permanent feature in all issues. I think people are going to examine the benefits and burdens of an overseas versus India listing. They are going to look at whether they get a valuation arbitrage, whether it makes sense for them to list from a branding perspective and finally if it makes sense for them from an ongoing perspective.  We have also had conversations with a few people who have listed abroad about delisting. We have seen some of the European and Swiss companies have delisted from NYSE because they have not seen the benefit of a dual listing.  This begs the question will we see a regulation later which will say that people who are listed abroad have to come back and list in India again as used to be the cas

To view the digital version of this report please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.   IFR: One issue that remains a challenge for companies raising capital abroad is that some Indian promoters seem to still want high valuations that were given to Indian issuers in 2007-2008. Also many of the overseas listings have not done well after listing, for example business trusts in Singapore.  Is that a deterrent when one sells an issue abroad?   Bhavna Thakur:  The success or failure of a deal in the international market also leads the way for future companies. For example every time a company will go to the US, the US-based investors will look at MakeMyTrip, when a company goes to London the London investors look at Essar Energy when a company goes to Singapore they will look at Religare Health Trust.  These are cases that set a precedent.    Paritosh Basu:  Essar’s weak listing should not be quoted as an example for people who want to go for an overseas listing in the future. Nobody could believe that Essar would lose the sales tax case. International opinions said that Essar would win the case. The Indian power growth story has also been affected across the board in India. I can assure you that one Essar will not create a bad event for India and because people know that why it has happened.   Avinash Gupta: I think valuation is always a challenge when you are dealing with personalities whose personal wealth is involved. As a promoter I will want the best price for my company. Surprisingly, it is no different when you talk to professional investors. Private equity guys behave worse than promoters at the time of exiting a company. The regulator has been introducing some checks and balances which are good in the short run but not so good in the long run. For example, the safety net mechanism for retail investors. So I think valuation is something which I guess we will get better and possibly leave money on the table for investors and kind of build a bigger success story.   V. Jayasankar: All of us have been looking at the track record of the last four or five years to say that probably promoters have been a little more greedy if you were to call it that way. There are various factors that are going to valuation. For example in 2010-2011, India was looking extremely rosy and I don’t think anybody was talking about all these problems on current account deficit or exchange movement. However, 2012 and 2013 have turned out to be very different. The business models of many companies have taken a hit because of the economic slowdown and you cannot blame them for it. Everyone got the macroeconomic picture wrong.  Secondly, if you look at many of the sectors which raised significant amount of equity such as power and infrastructure everyone got the reading wrong on government policies and regulatory issues. So there again I don’t think it is easy to blame anyone, it is an external factor.  Having said that, I have noticed sometimes when companies go public they don’t have a very rigorous system of forecasting and be in a position to deliver. Today internal factors, regulatory and macroeconomic issues are all playing at the same time and you are probably seeing more number of companies having lost value compared to where they listed.   IFR: How does one increase coverage on a stock once it gets listed because in some instances we have seen that once a stock gets listed, there is no follow up of investor meetings by the promoter.   Samarth Jagnani: I think we need to go back to the start of the discussion where the panelists said that there has to be a reason for a company to list overseas.  If there is a reason for the company to list overseas and it has a stable business model then it will grow into a market cap, because few companies can be $1bn plus market cap coming out of a mid cap segment from India. Brokers cover stocks when investors are interested in it and

To view the digital version of this report please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.   IFR: Today is actually an interesting day to have this roundtable because after a long time we have an Indian company, Power Grid trying to raise close to US$1bn from investors in India and abroad and for a change, we actually have a company which wants to raise money for its own growth and not the Indian Government trying to get money for its physical fiscal deficit.  The Indian economy continues to face macroeconomic and foreign exchange challenges. Does the economy as a whole need to go up before companies can start raising money abroad or are there individual growth stories which can raise money irrespective of what is happening to the economy. What are the challenges faced by Indian companies raising money abroad? What will be the impact of the forthcoming elections on the fund raising plans?   Samarth Jagnani, Morgan Stanley: From an Indian corporate capital raising perspective companies from all sectors raised capital between 2006 and 2008. The infrastructure and real estate sectors were at the forefront of raising capital and that was driven by good macroeconomic growth within the country and healthy demand for Indian paper. If you see in the last two years we have had companies which had unique business models out of India raise capital. Even from the government of India, companies with a very strong fundamental story are able to still raise capital such NTPC and Power Grid. The question at this stage is whether companies in India actually want to raise capital to invest for growth or that there is enough unused capacity in their systems through which they can service the demand.  So that is primarily the reason why most people have not really raised capital  per se if you compare India with rest of the world. Globally, 2013 was one of the best years for equity capital markets and there is no reason why Indian companies cannot raise capital. The question is whether they want to raise capital. For companies whose stocks have been beaten down they may want to figure out debt restructuring solutions to tide over their short term payment. They might consider raising capital once the economy bounces back and their valuations become better. So per se I do believe that the environment still remains for companies to raise capital if they want to raise capital.    Marco Estermann: The domestic businesses of companies have to be doing well for them to achieve the valuations they want when they raise capital abroad. Six Swiss Exchange is the European leader in the health-care, specialty chemicals and industrial sectors and companies that are in these sectors will be able to attract substantial demand.  Generally spoken, overseas investors don’t like if companies just step into the capital markets to raise funds and are never seen again. Investors want to invest in companies that have decent investor relations, who meet investors to explain their strategies and potentially raise additional capital in the future to further the growth of the company. Investors would appreciate companies coming back and meeting with them, talking to them and explaining their strategy going forward.   Avinash Gupta: We were told that our comments are now public so it cannot be too controversial but just to wake everybody up, is it a shortage of capital for Indian companies or is it a shortage of the right story, right type of companies or promoters trying to raise capital. To put things in perspective, approximately US$100bn has been invested by various private equity and other players through 5,532 deals since the Indian economy opened up in the early 1990s. Of this US$100bn, believe it or not,  approximately only US$25bn has gone back into the companies for growth while US$75bn has been kind of badly spent. This has been the fault of not only the promoters but also of the managers, who

To view the digital version of this report please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com. Abhimanyu Bhattacharya: Amarchand & Mangaldas & Suresh A Shroff & Co.Abhimanyu Bhattacharya is Partner Capital Markets at India’s biggest law firm, with several years experience advising on capital markets transactions, he joined the firm in 2006 and was appointed partner in 2013. Avinash Gupta: DeloitteAvinash Gupta has led Deloitte India’s financial advisory business since 2009, which provides transaction related services across M&A and corporate finance. Prior, roles include over 10 years with HSBC Investment Bank, and UBS, ING Barings and Citibank in Asia.. Bhavna Thakur: CitigroupBhavna Thakur is the Head of Equity Capital Markets for India, a group which is primarily responsible for executing and originating all equity and equity linked transactions, and has been involved in the execution of over 50 capital market transactions with leading companies. V. Jayasankar: Kotak Mahindra CapitalJaya Sankar is head of equity capital markets responsible for all equity related transactions. Over the last 2 decades, he has worked in diverse areas within the investment bank encompassing capital markets, private equity and M&A.. Marco Estermann: SIX Swiss ExchangeMarco Estermann is head of issuer relations. His team is responsible for the origination of new listings as well as the relationship management with listed companies. Before joining SIX Swiss Exchange, Marco worked for corporate finance teams within investment banks in Zurich and London. Dr. Paritosh Basu: NMIMS University MumbaiDr. Basu is senior professor of the School of Business Management, NMIMS University Mumbai and was the group controller of Essar Group until 2013, and CFO of Reliance Communications until 2008. Dr. Basu is member of the Institute of Chartered Accountants of India.. Pranjal Srivastava: ICICI SecuritiesPranjal Srivastava is head of the capital markets, responsible for originating and executing all equity and debt transactions. Pranjal has been in investment banking for over 16 years and has worked on over 100 successful transactions in India. Samarth Jagnani: Morgan StanleySamarth Jagnani is executive director and head of global capital markets India, responsible for origination and execution of capital market transactions for Indian corporates. Over the last 8 years, Samarth has executed more than 70 transactions in both equity and debt in India and abroad. Tarun Gupta: SIX Swiss ExchangeTarun Gupta is the India representative of SIX Swiss Exchange and the co-founder of T&A Consulting. Prior roles include head of international business division at HSBC Bank Plc, UK and regional head of corporate banking for HSBC, India. S Anuradha: IFR   To continue reading this roundtable, click the relevant section. Introduction - Participants - Part 1 - Part 2 - Part 3