In Charts: M&As Set The Ball Rolling For Investment Banking In India

Mergers and acquisitions contributed two-thirds to the overall investment banking deals in the country in 2018, aided by stressed debt resolution at India’s insolvency courts.

Investment banking deals worth $110 billion were executed until November this year, according to a Kotak Investment Bank report. As much as 67 percent of the total deal value came through M&As, with an average deal valued at $93 million. That compares with M&A’s contributing 45 percent of $100 billion in the entire 2017.

Investment banking firms raked in $500-600 million this calendar year, aided by the increasing deal sizes. The report, which sees the equity market as “conducive”, forecasts the investment banking fee pool to swell closer to the $1 billion mark in the next three-four years.

Resolution through the Insolvency and Bankruptcy Code aided the deal activity in the last two years through distressed M&As with deals worth $14.3 billion completed during the period, according to the report. India rolled out the new law two years ago as stressed assets of banks jumped after the Reserve Bank of India initiated an asset quality review to clean up bank balance sheets.

The basic materials sector largely drove home the growth on the back of the Insolvency and Bankruptcy Code. The $6.8 billion dollar acquisition of Bhushan Steel Ltd. by Tata Steel Ltd. was the most important deal that stemmed out of the new law, driving the flow of money into the sector in 2017-18. Other deals include Vedanta Ltd.’s acquisition of Electrosteel Steels Ltd., Reliance Jio Infocomm Ltd.’s decision to buy assets worth $428 million from Reliance Communications Ltd. and IHH Healthcare Ltd.’s planned acquisition of Fortis Healthcare Ltd.

Initial public offerings, in the latter half of 2018, virtually came to a standstill owing to global concerns arising from the U.S.-China trade war, liquidity crisis, and the political uncertainty ahead of state and general elections in India.

2017 witnessed several large IPOs—HDFC Life, ICICI Lombard, SBI Life. In fact, financial institution groups continued to dominate the IPO landscape, accounting for 50 percent of the total IPO volumes in 2018.

The first half of 2018 saw a trend of large IPOs, continuing with the Bandhan Bank’s Rs 4,473-crore listing, and HDFC Asset Management Company Ltd.’s market debut, which turned out to be the sixth-best in over two years.

The report remains positive about the recovery of IPO momentum in the latter half of 2019. “IPO recovery and tone will be led by sector leaders/differentiated businesses in the first quarter as investors will be selective in their investment themes,” the report said.

Although the number of deals in the digital sector dipped in 2018 to 83 from 2016’s 144, the value of deals surged 1,500 percent to $18,731 million this year from $1,170 million in 2016. The $445 million investment in Paytm by Alibaba and SoftBank, and the $310 million funding received by Swiggy were among the key deals that drove the growth in the digital sector.

Strategic and secondary sale contributed 85 percent to the exit activity in 2018. Strategic sale included exit of investors like Tiger Global, Naspers and SoftBank from e-commerce company Flipkart.