UK lender HSBC Holdings plans to beef up its investment banking operations in India, leveraging its balance sheet to help it grow in a deal-making market that is both fast-growing and fiercely competitive.
HSBC aims to add about a dozen staff to its roughly 80-strong investment banking unit in India over the next year, building both its M&A advisory and equity capital markets businesses, Naina Lal Kidwai, country head for India, said in an interview. "We are well capitalised in the country already, we have the liquidity and we have the risk appetite to actually grow this business," said Kidwai, who was recently appointed to the board of the bank's Asia-Pacific unit.
In India, Europe's biggest bank has not typically been a top-tier player in M&A advisory and equity underwriting, although it ranks fourth on the M&A league tables in 2010 after ending 21st and 14th, respectively, in the past two years, Thomson Reuters data showed.
After a lull during the global financial crisis, investment banks have resumed hiring in India as dealmaking has recovered even as underwriting fees remain notoriously thin, especially on government deals that will account for a sizeable chunk of the roughly $30 billion in equity issuance expected this year.
Indian firms, which escaped the worst of the global crisis, have returned to their acquisitive ways, completing nearly $26 billion worth of deals this year, headlined by Bharti Airtel's $9 billion acquisition of the African operations of Kuwait's Zain.
Banks that have the willingness and capacity both to advise on deals and lend to acquirers have an advantage in markets like India, where fees for pure advisory can be low, some bankers argue, giving an edge to commercial banks such as Standard Chartered and HSBC.
"In this new world, the ability of the pure investment banks to provide financing of this nature is clearly an issue. There are fewer players and those that are there are weaker than they were before," Kidwai said.
"So, there is a gap in that there is a reordering of the importance of banks with financing, with balance sheet now available," the veteran banker said in her office at HSBC's country headquarters in a historic building in south Mumbai.
Three of the four banks that top the Thomson Reuters league table of completed M&A deals this year in India - Barclay's, StanChart and HSBC - are all commercial banks that have brought their balance sheet into Indian M&A deals.
"It's a very important aspect of what our customers require, it is a very important aspect of how we can use our balance sheet more effectively with our customers and in fact bring our margins up through the fee earning potential of that business," she said.
To bolster its investment banking business, HSBC in June hired Sunil Sanghai as head of global banking in India from Goldman Sachs, where he was co-head of the investment banking division in the country.
HSBC, one of the top three foreign commercial banks in India along with Citigroup and StanChart, is also looking to build up an India equity issuance business that ranks 21st thus far this year, slipping from 17th for all of 2009, according to Thomson Reuters data.
"What we also have to do and are continuing to do is to build our equity capital market, equity trading, equity research, equity sales teams on the other side, because we are engaged on a bunch of capital market activities," Kidwai said.
HSBC was one of four lead managers for a public offering of shares in state-run Engineers India that raised $211 million earlier this month. A host of other state-run firms are expected to hire banks over the next few months for share sales.