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Indian firms will be very selective in M&As
April, 28th 2010

Regulatory action in the US may have put Goldman Sachs on the back foot but the Indian arm of the financial major is still focused on serving its important clients. Ashish Rukhaiyar and Vandana talk to Sunil Sanghai, the head of the investment banking team, on Goldman Sachs India plans, mergers and acquisitions, and the regulatory arena. Excerpts:

Goldman Sachs has been at the centre of regulatory action in the US and also in some places in Europe. What will be the impact on the Indian arm?

As the firm has stated clearly, Goldman Sachs will never condone its employees misleading anyone. Were there ever to emerge credible evidence that such behaviour occurred, we would be the first to condemn it and take appropriate action. In the meantime, we are very focused on continuing to serve our important Indian clients and help them achieve their goals and ambitions. We have added a significant number of senior people in Mumbai and Bangalore. Many of them have chosen to join us from our leading competitors. We currently have a headcount of more than 3,100 professionals in India and that number will continue to increase. Goldman Sachs is also arguably one of the significant investors in India, if not the largest, in the aftermath of the financial crisis. Thus far, we have put more than $2 billion to work.

Do you think big-bang M&A deals are back?

Talking about outbound M&A transactions, we will continue to see activity, although, given the global environment, Indian companies will be very strategic and selective meaning most deals will be moderate relative to the size of the acquirer. In case of inbound transactions, we do continue to see substantial interest across the spectrum of industry sectors. As regards domestic consolidation, it is a medium- to long-term strategy, and is very real. In short, it is not a question of will this come? It is a question of when will this come?. Although, given the growth expectations, the volume of transactions will be restricted.

Will outbound deals remain moderate?

They will take place, but fundamentally, the transactions will remain moderate relative to the size of the acquirer. The reason being that first, leveraged buy-outs have become much more rational; second, cross culture integration has its own challenges; and finally, the global economic downturn has made companies more risk averse.

Is the regulatory framework conducive to domestic M&As?

The regulatory framework is not a challenge, minus some sector-specific restrictions, which are for various social and foreign ownership reasons and are by design. Our regulatory framework for domestic M&A has all the required pillars. One area where I feel we could do better is minority squeeze-out and taking companies private. This will enable ownership consolidation by delisting of companies.

The appetite for public sector issues has not been great. How do you see the current financial year, when the government intends to raise a large amount of money?

Traditionally, retail participation in initial public offers has been higher due to expected appreciation at the time of listing. However, FPOs (follow-on public offers) in general have not been very popular with retail investors one, because investors have the option to buy from the market; and second, due to the perceived limited appreciation opportunity. Most recent government disinvestments were by way of FPOs, which are generally targeted towards the institutional investors, unless regulations require otherwise.

Are there any globally accepted best practices in the book-building process which are currently missing in India?
Given significant expected participation by retail in Indian primary issuances, I believe the book-building process in India is fairly mature. However, from the primary market perspective, the question is where should we aim to be. Clearly, the long-term objective should be to shift primary market distribution to a secondary market model that is, the prospectus should be uploaded by the issuer on its website, investors should be able to call their brokers and place orders for subscription, and allotted shares should be credited to them in the electronic form.

Compared to some of your other foreign counterparts, Goldman Sachs has not been that active on the IPO front.
That is an incorrect perception in that you will note that Goldman Sachs has been involved in the largest FPO, many large QIPs (qualified institutional placements), the largest bond issue and significant M&As in the Indian corporate landscape. In addition, our IPO pipeline remains robust and exciting.

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