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Bar & Bench spoke to Manoj Bhargava, Partner, Jones Day, which has been the most active ILC and Rajiv Gupta, Partner, Latham & Watkins, recipients of the IFLR India Capital Markets Team of the Year award on their views about the changing trends in the Indian capital market landscape. The conversations here are an excerpt of the detailed PDF report. To download click here.
Manoj Bhargava, Partner, Jones Day (Singapore) (pic left)
What are the capital market trends over the last five years and and where do you think the market is headed over the next five years?
The last five years have seen many new foreign law firms undertake international transactions for Indian companies. There are reasons for this. Earlier, capital markets in India, particularly, for Indian companies raising equity capital in excess of Rs. 2,250 crore ($ 500 million) was very limited. Now there are several companies, which are raising significant amounts of capital. So, the Indian capital market has matured in terms of depth. In addition, if you compare the sheer number of capital markets transactions that have completed in the past three years in India with any other country, barring perhaps US and China, you’d be surprised with the high levels of activity in India.
Another trend in the last two years, there have been stricter levels of risk management, compliance and disclosure. Investment banks are more focused and committed to Indian clients. Investors, especially after the 2008 downturn, are more discerning and active. And regulator activism and oversight has increased as well.
What is the importance of India for Jones Day? What strategies separate Jones Day from the rest?
Jones Day continues to maintain its leadership position in the international capital markets practice in India. We believe in delivering quality work, which means that our transactions involve significant commitment and time for partners who have tremendous experience and expertise. We see India as a long-term story and investing right talent and expertise in building our India practice. Our commitment and expertise is evidenced by recent best deals of the year awards to the Tech Mahindra-Satyam acquisition and the Adani Power IPO.
Which capital markets transaction has been the most challenging last year and why?
One of the most challenging transactions last year was the IPO of Adani Power, which raised in excess of Rs. 2,700 crore ($ 600 million). The reasons are several. Firstly, there had not been any IPO of this size in India for the past 18 months or so. Secondly, the then new ICDR regulations brought forth new nuances such as the ability to have anchor investors. Moreover, 11 Banks were underwriting the issue. This issue gave the confidence to the markets that the capital markets are back in action after a year and half of difficult time.
Do you hold the view that the geographical location of the transaction team affects a capital markets transaction?
Singapore is becoming a more accepted jurisdiction to do the international aspects of India related transactions. This is because of the short time difference and ease of travel to a number of cities in India as compared from London or New York, for example.
The financial turmoil of the last year has seen a number of Indian lawyers return to the fold. Your comments on this trend across the Indian legal market in general.
I frankly think it is terrific to see Indian lawyers coming back to India. This is great for the Indian market and Indian law firms. I believe that this phenomenon will continue now with the growth of Indian economy.
What is your outlook for the Financial Year 2010-11 for Jones Day?
We continue to submit proposals for capital market transactions for private as well as state-owned companies. The last few months of 2010 have been very busy and the balance of the year looks good. We have also seen significant activity in other practice areas such as project finance, acquisition finance and cross-border M&A in recent months.
Rajiv Gupta, Partner, Latham & Watkins (Singapore) (pic right)
Capital Market Trends
There have been several noticeable trends over the past five years. First, the size of offerings by Indian issuers has been growing and there are more and more large size global offerings reflecting the maturing and increasing depth of the Indian capital markets. Second, India has become a destination and region in its own right for raising capital – previously companies could not raise more than a few hundred million, but now we have capital issues like Reliance Power, in excess of Rs. 13,200 crore ($ 3 billion). While the ADR/GDR markets remain attractive, fewer companies are using that route as Indian markets have become strong and have the appetite for large transactions. Third, Indian capital markets now attract companies across sectors, rather than in any single sector. For example, Power, Steel, Pharma, Education, Real Estate etc.
One must also credit SEBI, which has, through gradual reforms, made India an attractive financial platform. There are now various systematic capital raising opportunities like QIPs etc. that have benefited the Indian companies. Convergence to IFRS should align the Indian accounting rules with those in international markets and make it even easier for Indian companies to make global offerings.
Latham is one of the premier international firms active in India, and it is one of the firms that has experience advising issuers and underwriters across the entire breadth of capital markets. Whether it is advising on IPOs, QIPs, convertible bond offerings, ADRs or GDRs. Our practice has been at the forefront of market for many years, having advised Infosys on the first US listing by an Indian company more than 10 years ago.
Further, Latham & Watkins is recognized for its ability to close highly complex and high profile transactions. We are not in a race to do the maximum number of transactions.
Challenging transactions last year
The Sterlite Convertible Bond offering, a multi-award winning transaction,has been one of the most challenging transactions last year. This $500 million (Rs. 2,250 crore) offering, was the first time an Indian company issued SEC registered convertible bonds in the United States. Latham also represented Sterlite in connection with a $1.6 billion (Rs. 7,200 Crore) American depositary share (ADS) offering, this was the largest equity offering by an Indian company in the US since 2007.
Outside of capital markets, the firm advised on the acquisition of Satyam Computer Services Limited by Tech Mahindra Limited. In the role of sellers counsel, this transaction was a perfect example of Latham’s global platform, with ten offices across 3 continents working collectively on the transaction.
Is Singapore the new hub?
Singapore has become a preferred destination for India practice for international law firms. This preference for Singapore is derived from a number of factors including Singapore’s geographical proximity to India, the frequency and volume of available air travel between the two countries, and a time difference of only 2.5 hours between India and Singapore which makes it easy for lawyers to be available for clients almost on a real time basis. These factors, coupled with the large pool of talent available in Singapore, makes Singapore the logical destination.
International Indian Lawyers
Historically, the reasons why people migrated from India to other countries were career growth, money and infrastructural support. This was certainly the case ten to fifteen years ago, but the situation has changed drastically since liberalization. Material comforts are now readily available in India and most lawyers feel that the Indian economy will be a growth story for at least the next few decades.
Given this migration and the subsequent return to the region of many of these lawyers, there is now a desire among companies to deal with domestic lawyers with international experience.
Many of the points mentioned above have had the net result that there is now tremendous competition amongst foreign law firms and domestic law firms for quality Indian lawyers. It is now commonplace to see lawyers either moving from New York to Singapore or Hong Kong, or directly to Mumbai, Delhi and Bangalore.
One other trend of note is that most Indian and multinational companies are recruiting associates and partners of foreign law firms for their in-house counsel positions in India. As international companies set up regional or country offices in India, they need the assistance of in-house counsels.
As a result of all these changes, Indian lawyers based outside the domestic market have a number of options when considering returning to their roots.