How Nomura Is Constructing Its India Enterprise

Utpal Oza ( left ), MD & Head of Funding Banking with Amit Thawani (proper) , MD & Head of India Protection , Nomura India at their workplace at Worli
Picture: Neha Mithbawkar for Forbes India

It was December 2016 when world personal fairness fund Creation Worldwide acquired a major minority stake in funding and wealth administration agency ASK Group. At that time ASK was managing property of over Rs 29,480 crore ($4.4 billion). It was the third deal Creation was closing in two years, and the primary cheque to be minimize for an India deal from their then newly raised $13 billion fund. Creation’s India staff roped in Nomura’s funding banking staff for help on the monetary facet of the enterprise because it was their first funding within the wealth administration enterprise and likewise the primary from their new fund.

“We chosen Nomura to steer the method due to their repute within the monetary companies trade. They have been instrumental in serving to us navigate a fancy transaction and their dedication to making sure a profitable consequence was admirable,” says Shweta Jalan, head of Creation Worldwide in India.

In 2018-19, the administration of ASK determined to take their firm public and Nomura took them for roadshows. At the same time as they have been pinning their hopes on the IPO, capital markets tanked and the plan was placed on the backburner. However the agency employed Nomura in 2020 to undertake a financing train and by March 2021, they have been appointed to undertake the sale of the promoter’s stake and a number of the shareholder’s stake which included Creation’s stake. After operating a full-blown world home sale course of, the sale was closed in February this yr. In keeping with a report by thecapitalquest.com in October 2021, world personal fairness agency Blackstone acquired 71.25 p.c stake within the firm. By the point the sale was formally introduced in February 2022, the deal worth was pegged at $1 billion and ASK’s property beneath administration (AUM) was over $10.6 billion. It’s estimated that Creation took house almost 4 instances on its funding.

However the Nomura India staff’s job didn’t finish right here. Now that the funding banking staff was accomplished with the sale course of, the debt staff sprang into action–to elevate leverage finance for the biggest ever wealth administration transaction in Asia. Together with different funding banks, it then offered acquisition financing help to Blackstone for the deal. And at last, it supplied Blackstone a foreign money hedging answer for the transaction. Foreign money hedging is a crucial facet for world traders who must return capital to their restricted companions in {dollars}, particularly when the funding is completed in an organization whose revenues are generated largely in Indian foreign money opening them to foreign money headwinds. As and when Blackstone plans to take the corporate public, Nomura hopes it will likely be a part of that deal too… in spite of everything it has been a part of the corporate’s deal life cycle over the past seven years.
 
“5 years again, wealth administration was an rising sector that had witnessed very restricted deal exercise in India. Therefore, there have been no logical comparable listed gamers or transactions that might be referenced as a benchmark. On this backdrop, we assisted Creation within the acquisition of ASK by drawing upon our world experience within the asset and wealth administration sector,” says Utpal Oza, managing director and head of India for funding banking at Nomura whereas sitting at their headquarters in Worli in Mumbai overlooking the Arabian Sea.

One of many plus factors for Nomura at that time was the truth that Nomura had an enormous wealth administration enterprise in Japan and so they had managed to shut a few trillion {dollars} of wealth in Japan. Globally, the agency knew the rising energy of wealth administration as a enterprise vertical and the growing bespoke wants of ultra-high-net-worth people (UHNI) and high-net-worth people (HNI).

Oza believes the sheer data of the sector globally allowed them to contribute distinctive insights for Creation’s consideration. He provides, “We not solely targeted on the transaction at hand but additionally suggested on who might be the potential patrons for this asset when Creation decides to exit sooner or later.”

Sturdy entry to ASK’s administration staff additionally allowed them to deepen their engagement with Creation. “First, it was within the monetary sector, which is a spotlight space for many sponsors working in India. Second, it was a chance to amass a scaled asset within the wealth administration house which was a quick rising sub-segment throughout the financials house with beneficial tailwinds,” explains Oza.

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Like many of the monetary companies on the road, Nomura too clocked all-time excessive numbers for its India enterprise final yr. Because the pandemic, it has been appointed as service provider bankers for 14 IPOs together with the $750 million (Rs5550 crore) IPO of automotive agency Sona Comstar, an automotive provider agency backed by Blackstone. Since 2017, it has participated in over 51 fairness capital markets (ECM) transactions to boost near $23 billion for its purchasers. Since 2020, Nomura has closed 13 M&A offers throughout sectors with a balanced contribution of sell-side and buy-side M&A transactions, probably the most notable ones being the sale of ASK to Blackstone, the acquisition of Eureka Forbes by Creation and the sale of Thyrocare to PharmEasy.  Since 2020, it has closed over 20 offers beneath its debt financing vertical to each monetary sponsors and company purchasers. This features a $1.1 billion fundraise for a world personal fairness fund for financing its buyout transaction. Nomura additionally participated in elevating $1 billion for The Carlyle Group for the acquisition finance of Hexaware.

Additionally learn: LIC: Robust highway forward as inventory continues to tug

The individual main the present in India is Utpal Oza, one of many agency’s earliest recruits, who joined in 2006 and was among the many founding staff of Nomura’s India franchise. Amit Thawani, who joined shortly after in early 2008, has been on the helm together with Oza. Nomura obtained its service provider banking licence in 2008 and right now employs greater than 100 folks throughout all its three operations–investment banking, fastened revenue and equities. The agency noticed vital progress between 2007 to mid-2008 when it participated in merger and acquisition transactions.

Publish the Lehman acquisition, the agency grew quickly in India, when it had near 60 sources throughout funding banking after which it went by means of a interval of consolidation and between 2012 and 2014 when the market bounced again, they continued to consolidate. It’s since 2016 that the agency has aggressively been constructing on its funding banking enterprise. Numerous different world banks of comparable classic have pulled the plug on a variety of companies they provide, together with giving up the equities licence to give attention to mergers and acquisitions.

Throughout the peak of the worldwide monetary disaster in September 2008, Nomura Holdings Inc. introduced the acquisition of Lehman Brothers’ franchise within the Asia Pacific area together with Japan and Australia. Throughout the good days, primarily simply earlier than the monetary disaster, when Lehman even minimize a cheque for now bankrupt actual property agency Unitech Group, Lehman’s headquarters was situated in the most costly industrial property of Mumbai, Ceejay Home in Worli. It’s been over a decade since Nomura took over the property and it now works out of Ceejay Home.

“For us, India as a rustic is probably probably the most worthwhile in Asia ex-Japan and with a rising consumer franchise. And one of many key causes behind that is the administration stability which has considerably contributed to sustaining continuity in consumer relationships,” provides Oza.

Many funding banks (together with a number of the largest world gamers) had recognized India as the subsequent key marketplace for progress and aggressively needed to construct their enterprise within the nation, which is the place Thawani believes their method was completely different.

He explains, “We in a short time realised that we don’t wish to make the identical mistake as others. We needed to construct it step-by-step and that’s the reason initially we targeted on constructing what we name the financing enterprise with a particular give attention to personal fairness transactions.”

At the moment, near one-fourth of the agency’s India enterprise comes from monetary sponsors. Monetary sponsors are personal funds which deploy capital in companies.

It then targeted on constructing its fairness capital enterprise with sturdy analysis capabilities. One instance being, throughout Covid-19 Nomura’s Enterprise Resumption Index was a extensively used reference level by traders and the general public generally. Backed by its analysis providing, it began ramping up its major market choices. It began bidding for Authorities of India’s share sale programmes which, Thawani believes, has helped them construct their credibility available in the market. This yr, Nomura was a part of the ten service provider bankers who took India’s largest insurer Life Company of India (LIC) public. LIC’s shares have tumbled since itemizing the Rs 21008.48 crore preliminary public providing (IPO). On Could 20, the shares listed at a 9 p.c low cost to its IPO’s higher value band of Rs 949 per share. As on July 14, the shares closed at Rs 712.15 per share on the Bombay Inventory Trade (BSE).
 
Oza says, “We then targeted on our capital markets platform and constructed the interior experience on each the regulatory and traders entrance. Our focus was on delivering the proper outcomes for each purchasers and public traders and finally consumer referral has been the important thing driver that has allowed us to develop our ECM franchise. And at last, M&A was at all times core to our operations and we’ve constantly constructed this enterprise which has grown near 10 instances over the past 5 years. And to make clear, our M&A franchise was not simply targeted on leveraging the Japan-India hall. We strategically targeted on home sell-side and fund-raising mandates, in addition to assisted Indian purchasers who had world progress aspirations.” The agency largely focuses on 5 sectors–financials, know-how and media companies, infrastructure, healthcare, client and retail.
 
Thawani chips in, “There are some things that clearly stand out for us, the important thing one being that we’re very clear about what we don’t wish to do. Like we don’t do offers within the metals and mining sector. When the agency and the staff are targeted and also you’ve chosen the battles that you just wish to struggle, then you definately struggle onerous with a transparent objective of profitable all battles in that house. You will note Nomura advising on $100 million transactions in addition to $5 billion transactions in these focus sectors. We don’t imagine within the idea of small offers, we cowl all the spectrum.”

Thawani, who joined Nomura in 2008, takes care of all the protection operate which primarily means funding bankers throughout protection areas report in to him, and he’s deeply targeted on the monetary establishments sector.

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Over the past six years, debt has develop into one in every of Nomura’s strongholds.  The individuals who have historically dominated the debt house are deposit taking banks, or credit score funds with a considerable amount of investible capital. However Nomura’s capital neither has a considerable amount of investible capital pool nor does it supply low-cost capital to its purchasers, but it has discovered takers for its merchandise in a extremely aggressive market.

The fastened revenue enterprise is split into the structured company debt enterprise and the second is a danger options enterprise. For sponsors (personal fairness and enterprise capital funds), the technique may be very easy. It wish to be a one-stop store for them with respect to each sort of financing or danger administration answer that they want for themselves. “On the subject of debt, the extra the complexities within the transaction, the extra bespoke it’s, the extra we prefer it. The depth of our mental capital to make these offers occur is one thing we’re very pleased with,” provides Oza.

Whereas mainstream offers proceed to be their mainstay, Nomura is slowly transitioning itself into an ESG-themed enterprise. It has been elevating capital for inexperienced vitality firms—as an illustration, it has helped Renew Energy elevate $585 million senior notes and Rs 4.9 billion in non-convertible debenture (NCDs).

Thawani provides, “And we predict that as markets and traders focus extra on ESG, we anticipate to see that firms which have sturdy ESG credentials would wish to faucet the first markets. These might be environmental-focused firms, akin to these into renewables; superior transportation firms, akin to electrical car OEMs and part producers; or firms which might be into companies with a really sturdy social angle, such because the upliftment of a complete group. Traders will gravitate in the direction of these firms as a result of every financial institution, each investor, now has a really sturdy ESG mandate.”

Nomura has been busy stitching inexperienced offers globally as a part of its bigger mandate (it has suggested over $130 billion price of M&A within the clear vitality sector) together with the sale of Terraform Energy to Brookfield for $9.85 billion in July 2020.  

Because the final 12 months, Oza is of the view that there was a variety of media hype round unicorns. Oza sheepishly smiles and says, “There’s little question that the Indian start-up world is a giant beneficiary of fund flows into India, which in flip has been pushed by world funds elevating large Asia-dedicated funds that have to be deployed within the area. Valuations saved growing as there was euphoria available in the market, backed by very sturdy tailwinds and momentum for brand new financial system investments, which led to a sturdy urge for food from retail HNIs and institutional traders within the public market.”

He additional breaks it down saying that within the effort to not miss out on potential multi-bagger alternatives, traders checked out progress, compromised on profitability and ignored established valuation benchmarks, which has resulted within the current valuation corrections which have impacted all sectors together with tech and new financial system. “There are a number of different sectors the place a number of the froth has been taken out. Given the final excessive publicity to tech property within the personal fundraise area, it has come to the limelight greater than the opposite sectors,” he says.

Within the tech house, it had suggested Nazara Applied sciences $81 million IPO, CarTrade’s $404 million itemizing and the $160 million itemizing of Fino Funds Financial institution. Whereas it’s betting on future offers within the tech house, it believes world valuation correction on this house will permit for rational investing valuations within the coming months.

“They’ve been attempting to take part in massive transactions and one factor that has helped them is their skill to cost their purchasers effectively with world traders throughout roadshows. They’re now actively attempting to do offers within the sustainable house the place competitors is toughening amongst world banks, and everyone seems to be eyeing the identical pie, so it will likely be fascinating to see how they construct on this observe,” says the top of a home funding financial institution who didn’t want to be named, as they immediately compete in the identical verticals.

Whereas markets have been languishing owing to world inflation, the battle between Russia and Ukraine and continuous job losses, Oza and his staff at Nomura stay constructive available on the market. They anticipate the second half of FY23 will see high-quality firms with sound enterprise fundamentals and cheap valuations faucet the capital markets. “The personal fairness market, whether or not by way of buyouts or capital elevating, stays energetic. With valuations correcting and a lull in capital markets exercise, it offers fascinating alternatives for personal fairness funds over the approaching months, that might spur the financing markets,” says Oza. One other fascinating and comparatively new dynamic that Nomura has been witnessing is the home consolidation led by massive conglomerates throughout tech and conventional old-economy sectors which is predicted to proceed to drive deal exercise within the nation.

At the same time as issues of a world recession are slowly gaining voice, the agency is busy happening roadshows and elevating new mandates.

As Oza says, “Over the past 15 years, we’ve had some ups and downs however as we take a step again and evaluation our progress trajectory, each setback was an enriching studying expertise and each success was a end result of painstaking staff effort by a dedicated and skilled staff. The staff stays secure, the starvation to do extra and do higher has not modified, and purchasers stay core to our operations. So we’re assured that we’ll proceed to pattern in just one course–upwards.”