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Bar & Bench speaks to Arun Balasubramanian, Partner India Group at Linklaters, Singapore and Pooja Sinha, Counsel at O’Melveny & Myers.
Bar & Bench: Why is India important for Linklaters? Talk us through the firm’s strategy to grow in India.
Arun Balasubramanian: For a number of years India has been and continues to be a strategic priority for Linklaters. We were the first international law firm to set up an integrated India focused group and elect partners across practice areas who focused on India related work. We built partner and associate teams with India expertise across offices and practice areas, and have invested in developing deep relationships with a range of leading corporate and banking clients. Our efforts have resulted in a high quality, market leading practice which has been recognized as such by the market. For example, for the last two years, the Chambers legal directory has rated Linklaters as a ‘Tier One’ firm right across corporate/M&A, capital markets and banking/projects; we are the only international firm to bear this distinction. Our strategy is to build on this foundation, maintain leadership and provide a strong career platform to our India-focused junior lawyers.
Bar & Bench: What is the strategy for Linklaters’ India capital markets practice?
Arun Balasubramanian: Our vision is to build a sustainable and profitable capital markets practice that remains at the forefront of the market. Our focus is not on volume or the league tables, but on bringing our firm’s capabilities to bear on our clients’ most challenging and complex work. In the medium to long term, a leading capital markets practice needs to have the following attributes: (a) strength across the full breadth of capital markets products, i.e., equity, debt, equity-linked, derivatives and structured products, (b) leading practitioners who are renowned as such across these product areas, (c) equal strength in US and English law, as well as an understanding of Indian law matters and how they apply to the products and structures in question, (d) consistency of quality across offices and expertise that can be delivered to clients locally, if required, and (e) a good balance between issuer and underwriter side representation. I believe that we have strong foundations in each of the foregoing, and our challenge will be to build on them in a holistic manner with a firm eye on long term sustainability. Furthermore, we consistently try to develop the relationships generated through the capital markets practice to generate work for other practice areas and the firm’s global network, and we view the results as a key measure of our performance.
Bar & Bench: Any interesting market trends over the last year?
Arun Balasubramanian: Last year marked the resurgence of large ticket deals, driven largely by the Government disinvestments of public sector companies. In the private sector, we saw evidence of an increased willingness to move away from the IPO/QIP/FCCB norm and explore new products and markets. For example, we worked on the first-ever issuance of Indian Depository Receipts, which was undertaken by Standard Chartered to become the first ever foreign company to list on the Indian stock exchanges. This was a transaction of enormous significance and was possible only because of the imagination and creativity shown by various market participants, including the regulators. We also saw renewed interest among Indian businesses in overseas listings, such as Essar Energy’s listing on the London Stock Exchange, which we advised on, as well as smaller ones like MakeMyTrip.com which listed in the United States. We are also starting to see interest in Singapore and Hong Kong listings. On the debt side, the FCCB market was relatively quiet but Indian issuers did raise a substantial amount of straight debt in the international and domestic bond markets.
We also saw a greater willingness to embrace some of the more interesting structures that we work on globally. For example, we were able to structure an enhanced conversion tender offer for convertible bonds of Tata Motors, which is something that was not seen in India before. We then worked on a major QIP of Tata Motors DVRs (low voting shares). All of this means that as the capital structure and financing needs of Indian companies become ever more complex, there is a greater willingness on their part to explore new products and structures. Obviously, the regulatory issues remain but there does appear to be a trend towards regulatory flexibility.
Bar & Bench: Your predictions for the Indian capital markets.
Arun Balasubramanian: The growth prospects and the related capital requirements of Indian companies will continue to drive strong growth in the Indian capital markets. Over the long term, as enough liquidity builds in the Indian system, these requirements may be substantially met domestically. In the meantime, however, the international capital markets will continue to see active involvement from Indian companies. I expect this involvement to diversify away from vanilla products to embrace some of the more complex structures and instruments that are seen in the international markets. Obviously, there are a number of people who believe that the absence of these complex instruments had a great deal to do with the relative stability of the Indian financial system during the global financial crisis. On the other hand, Indian companies are growing globally and their financing and risk management needs are becoming more complex. This will require them to explore novel products, structures and deal techniques. As a consequence, some trends that we should expect to see are the emergence of a deeper and more liquid debt market for Indian issuers, the relaxation of restrictions that hinder issuances of high yield debt and hybrid capital, and the slow emergence of a derivatives market in India. In the meantime, I believe that the equity, equity linked and vanilla debt markets will continue to be major sources of foreign capital for Indian companies. Challenges remain, for example the much publicized allegations of lapses in governance and integrity by some major companies and their executives. These need urgent regulatory intervention and effective enforcement, in the absence of which investor confidence in the Indian capital markets is bound to suffer.
Bar & Bench: And what does this mean for law firms’ capital markets practices?
Arun Balasubramanian: Over the last few years there have been several new law firm entrants into the international and domestic side of the practice. This has resulted in intense price competition, which is to be expected. It is important, however, not to let pricing pressures affect execution standards. I continue to believe that there is sufficient space in the market for these new entrants and the incumbents, and that quality will be the real differentiator. Firms should focus on delivering service that is of the highest international standards, avoiding the volume game and ensuring that each matter has adequate attention from experienced partners and associates. The firms that are able to do this, ascend the value chain and consistently capture the complex, high-end work that is increasingly available in Indian market, will see this as a rewarding and sustainable long term practice.
Pooja Sinha, Counsel at O’Melveny & Myers (OMM)
Bar & Bench: In what manner is India important for OMM? Talk us through the firm’s strategy to grow in India, especially the capital markets practice.
Pooja Sinha: Historically, OMM has been one of the few far-thinking US firms which has focused on Asia right from the start, having opened our Shanghai office as far back as in the early 1990s. We have an extremely successful China and Indonesia practice – developing an India practice is a natural progression for OMM. In relation to international capital markets work generated out of India, we are looking to be a premium “go to” law firm combining international standards and best practices for deal execution with local expertise cutting across sectors and products.
Bar & Bench: Any interesting market trends over the last year, and where do you think the Indian capital markets is headed over the next few years?
Pooja Sinha: I think the most interesting market trend is the return to focus on deal execution in light of the increased risk of litigation in a volatile market. In addition, thanks to the GoI deals, we have seen a number of Reg S/144A deals with two international counsels, which is in fact the norm in markets outside India. Hopefully, this trend will also take root in private deals in the next few years. It is ultimately greater protection for the Company, banks and advisers if there are two pairs of eyes involved in the diligence/drafting effort.
Bar & Bench: You thoughts on the last financial year.
Pooja Sinha: We have worked on several of the largest government disinvestments in the last year- NTPC, Powergrid, Shipping Corporation and are currently working on the Power Finance Corporation transaction. Each of these transactions involved unique execution challenges given the multiple issues of US securities law that had to be worked through and the need to complete these transactions within an extremely tight timeframe.