ICICI Bank has been flying the flag for Indian commerce at home and abroad this year. M&A’s Morag Dickson caught up with the head of global investment banking, Kalpesh Kikani, to talk Indian corporates, foreign direct investment and infrastructure

An Indian summer for M&A

ICICI Bank has been flying the flag for Indian commerce at home and abroad this year. M&A’s Morag Dickson caught up with the head of global investment banking, Kalpesh Kikani, to talk Indian corporates, foreign direct investment and infrastructure

Kalpesh Kikani, the head of global investment banking group at ICICI Bank India, has seen an explosion in international M&A activity since establishing the bank’s London headquarters for corporate & investment business across Europe.

Set up in 2003, the department focuses on advising and investing in cross-border mergers and acquisitions and is currently the bank’s largest offshore hub through which, Kikani estimates, 75 per cent of the bank’s deals are processed.

While high deal volumes run through the London office, M&A activity in India is frenetic, he continues. “Hardly a week goes by without the closing of a significant global acquisition by an Indian player. Bombay is where the action is.”

Two key trends are driving this growth, namely domestic revenues and foreign direct investment (FDI).

“The Indian corporate has been hugely profitable over the last five to seven years,” advises Kikani. “This has meant that each year Indian companies are generating surplus cash from their businesses – a figure we estimate at between $150 billion (£74 billion) and $175 billion (£85 billion). This can easily be leveraged again at the same amount for investment purposes. Equally, global investors have demonstrated significant interest in Indian companies with FDI inflows breaking through the $10 billion barrier (£4.9 billion). So, Indian companies have access to equity via their own operations and potentially, from foreign investors.”

The global Indian

With the International Monetary Fund’s recent upward revision of India’s GDP growth rate by 0.6 per cent to 9 per cent for 2007, India is beginning to look more like a surging economy than an emerging one, and a number of home-grown companies are keen to expand.

“Over the last four years, we have seen the creation of global Indian multinationals. In some instances, the company’s international operations account for as much as 75 per cent of group profits.”

The loosening of regulation has facilitated this process. “M&A business has been growing at close to 100 per cent per annum for the last four years. In 2003, India used to account for 0.1 per cent of global M&A. That figure has increased to 2 per cent and we’re still playing catch-up. Companies in India are currently growing at around 20-30 per cent per annum, and I don’t see this slowing down over the next two or three years.”

That’s led to a busy time for ICICI in terms of the volume and scale of acquisitions completed by Indian companies. “Total deal values for the last 12 months are estimated at $50 billion (£24 billion). More specifically, ICICI has been involved – either as adviser, financier or both – in deals aggregating $44 billion (£21 billion) from investment banking centres in Bombay, London, Singapore, Hong Kong and the Middle East.”

Making inroads

A lot of opportunities are surfacing in India, according to ICICI group executive director, Sonjoy Chatterjee, who believes there is something of a corporate revolution underway.

Still, the high economic growth rates being forecast on the domestic front will only be realised if India’s infrastructure is improved, particularly its transportation. And while the Government has engaged in initiatives, private sector involvement will be required to get things done at the necessary speed.

Kikani explains: “Every time we go out to meet investors, the message is the same: improvements in infrastructure will enable Indian corporates to capitalise on their offering by establishing India as a global manufacturing base supported by a transportation network that would bring these products closer to market on regional, national and global levels.”

This bodes well for the bank, he notes, claiming ICICI commands a 40 per cent market share in the Indian infrastructure space. He predicts that Indian companies have around $450 billion (£218 billion) to invest in infrastructure over the next five years. “We are well positioned to span the entire capital structure in that space, including senior loan facilities, subordinate and mezzanine finance and also equity finance.”

ICICI: Stand-out deals

Tata powers its way to Indonesia

Tata Power acquired a 30 per cent stake in two coal-producing firms and a trading firm owned by PT Bumi Resources Tbk of Indonesia.

The $1.20 billion (£581 million) acquisition was funded by the internal accruals of Tata Power and a debt facility of $950 million (£460 million) backed by Tata Power. Together with two other banks, ICICI Bank arranged the facility, co-ordinating teams in Singapore and India.

Suzlon invests in Europe

Suzlon Energy, a wind turbine manufacturer with sites in the US and China, acquired two European companies in a bid to expand its reach.

The purchase of Hansen Transmissions International NV of Belgium for €465 million (£330 million) in May 2006 saw Suzlon secure the supply of gearboxes to its wind turbine business. The transaction was underwritten and syndicated by ICICI along with three other banks. Suzlon then raised €1.20 billion (£852 million) and put in a bid for Germany-based REpower Systems. The multi-tranche syndicated loan facility involved a consortium of 23 banks in consultation with mandated lead arranger ICICI Bank in Mumbai, Singapore and Hong Kong.

Fast facts – FDI in India

• Top FDI inflows in FY 2007-08 (up to May 2007) were:

$801 million (£388 million) investment in Vodafone (telecoms)

$258 million (£125 million) investment in GA Global Investments

(National Stock Exchange)

$204 million (£99 million) investment in EMAAR Holdings

(real estate construction)

• FDI inflows grew more than 185 per cent to $4.9 billion during the first quarter of 2007

Source: Department of Commerce, Government of India