April 20, 2009 / 2:48 PM / in 8 years

Kotak eyes M&A funding opportunity

MUMBAI (Reuters) - Kotak Mahindra Capital Co, the former Indian partner of Goldman Sachs, expects M&A funding to emerge as an opportunity in a market where its global peers are shying away from such deals amid the global crisis.

In India, M&A talks have been back in full swing over the last two months, after a six-month lull, but availability of funds is a constraint, the firm's managing director, Falguni Nayar, told Reuters in an interview on Monday.

"There will be more funding opportunities emerging. One would tend to use debt funding in most situations," she said.

Global investment banks underwrote huge debt to help their clients close leveraged M&A transactions in the boom years between 2005 and early 2008.

However, the worst global financial crisis in 80 years has forced banks to abandon the model as they set about cleaning up their books, opening the doors for regional players like Kotak.

The firm, a unit of private-sector lender Kotak Mahindra Bank, has this month arranged the debt for outsourcer Tech Mahindra's 550 million-plus deal for a controlling stake in fraud-hit Satyam Computer Services.

"We won't do a billion dollar funding and keep it on our books," Nayar said, adding the company would either sell the loan to other investors or use its relationships to arrange debt and charge the clients a fee.

She said the worst was behind Indian deal flows and expected opportunities to arise in distressed asset restructuring, convertible buybacks and infrastructure funding and advisory.

"There is long-term distress in real estate and construction. Retail may get there if the model does not succeed since companies have invested so much money," Nayar said.

India's March-quarter deal volumes tumbled as the global crisis hit, with M&A volumes down by three-quarter and IPOs almost non-existent, crimping investment banking fees by 64.5 percent, Thomson Reuters data showed.

"The rout looks behind us right now. But I don't know if we will get knocked by another punch. India's demographics and robust domestic demand will help us," she said.

Overcrowded

Nayar, who heads one of the biggest investment banking outfits in India with a 90 member team, said despite a likely recovery and job cuts by global players the investment banking and institutional broking industry was overcrowded.

"Unfortunately investment banking is one of the most cyclical businesses from boom to bust scenarios. While individual teams at each bank are not large, the total number of players are many," she said.

Global players such as Goldman Sachs, Morgan Stanley, Deutsche Bank, Credit Suisse expanded rapidly to corner a slice of the rapid Indian growth, only to cut back as the country reeled under the global crisis.

"India is still overbanked. Every player, whether it is an Australia specialist or a UK specialist or whether it is a mid-cap U.S. specialist, wants to be here," Nayar said. "In that sense, we need a correction."

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